Types of commercial mortgages
A commercial mortgage is any loan that is secured by either a rental (income-producing) property (including apartment buildings, shopping centers, and office buildings) or by a business related property (including owner-occupied buildings and manufacturing facilities).
There are a number of different types of commercial mortgages:
Permanent loan: The most straightforward commercial mortgage is the permanent loan – really any long-term first mortgage. Lenders typically issue permanent loans in the 5- to 10-year range, amortized over 25 years.
Takeout loan: A permanent loan that is used to pay off a construction loan.
Construction loan: When a developer is constructing a building, the first type of loan he’ll typically look for is a construction loan, which will cover development costs until the property is user-ready (at that time the construction loan is typically paid off with a takeout loan).
The most typical construction loan today is an uncovered loan under which the lender does not require a forward takeout commitment. (It used to be that lenders often required forward takeout commitments - agreements between the developer and the lender that the lender will fund the takeout loan to pay off the construction loan as long as construction proceeded according to the plan.)
Forward takeout commitments may help a developer sleep easier at night, but they typically cost 1-2 points, plus an additional point (at least) if the takeout loan funds. With so much commercial mortgage money available today, an uncovered construction loan is usually sufficient.
Bridge loan: A short-term loan, typically in the 6-month to 5-year range (3-year terms are the most common).
Mezzanine loan: A mezzanine loan is the commercial alternative to a second mortgage (few commercial real estate lenders offer second mortgages). In contrast to a second mortgage, a mezzanine loan is secured by stock in the company that owns the property rather than by the property itself.
Who sells commercial mortgages?
Commercial mortgages are typically offered by banks (both small and large), CMBS (commercial mortgage-backed securities) lenders, life insurance companies, and hard-money lenders.
A CMBS lender makes a loan according to very specific guidelines then assemble that loan with others like it into a large pool and issue securities to investors. CMBS lenders typically offer attractive interest rates, but also usually add in lock-out clauses and large pre-payment penalties.
Life insurance companies typically only look at the most desirable properties in a given region, and often lend no more than 60-70% loan-to-value.
Hard-money loans are typically very expensive, but can be much more flexible than loans made by banks, CMBS lenders, or life insurance companies. Developers looking for fast cash or loans on distressed properties – or those developers turned down by other lenders – can typically find a loan with hard-money lenders.
Brandt C Stohr has over a decade of commercial mortgage lending. From large commercial developments to small commercial mortgages, Brandt C Stohr has successefully placed billions of dollars worth of mortgages. To visit his web site go to
www.advisorycapitalinc.comArticle Source: http://www.ArticleSphere.com
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