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Commercial Mortgage Lenders struggle with Construction takeout loan

Financial Compound closed a $5.5 million construction takeout loan representing 115% of all-in project cost.  This loan was obtained after talking to many commercial mortgage lenders who shied away from making an uncovered takeout loan on this 25,000 square foot high-end strip center in Las Vegas, Nevada containing both national and local tenants.  Financial Compound structured this loan to close before construction was completed, with the loan funding upon Certificate of Occupancy for the majority of the tenants.  The loan allows for two end-cap tenant spaces to complete construction within the first 6 months after loan closing.  A personal guarantee was utilized as a temporary credit enhancement until a 1.20 property level debt service coverage is met.  Other loan terms include a 6.2% interest rate, 5 year loan term, 30 years amortization, 75% LTV, 1.30 DCR, non-recourse, no lender fee. 

Many commercial mortgage lenders have the same goal in mind- to make conservative commercial loans at attractive yields for their financial institutions.  However there is a wide variety of underwriting and credit philosophy amongst the real estate financial market players.  With a keen understanding the capital markets and capital provider preferences, it is possible to find a commercial mortgage lender to close a transaction where the vast majority of lenders are not interested.  A commercial mortgage broker such as Financial Compound is able to assist borrowers in placing their transactions even when lenders have told those borrowers that the transaction is not financeable.

A transaction has its strong points and weak points.  To be successful with commercial mortgage lender, a borrower is advised to find a lender who agrees with the borrower as to the transaction’s strong points.  For example, some lenders prefer long term leases to be in place, while others prefer short term leases at well below market rents.  Some lenders use a loan per square foot as their primary guide, knowing the cost basis they feel comfortable lending into certain product types and geographical markets.  Others look at the tenancy as the determining factor.  Other commercial mortgage lenders look to the experience and financial strength of the borrower and rely less on property level underwriting. 

Financial Compound has found that there are about as many opinions on a transaction’s financeability as there are commercial mortgage lenders.  From a borrower’s standpoint, it only takes one commercial mortgage lender to agree to financing the transaction.