Commercial mortgage loans are utilized in many ways. Often, the loan is sought to enhance the return on equity, or cash-on-cash return. For example, if the property cap rate is 7%, and the interest rate is 5%, then positive financial leverage exists. Commercial mortgage loans can be used to finance apartment buildings, office buildings, retail shopping centers, industrial buildings, hotels, and raw land.
The commercial financing marketplace is made up of many different types of commercial mortgage lenders. The financing terms that these lenders offer are usually based on their cost of capital as well as yields available to the lender from other asset classes. A good understanding of the capital markets will help best meet the needs of both the lender and the borrower.
Financial Compound is a commercial mortgage broker skilled at obtaining and structuring many types of commercial mortgage loans for its clients. Our proven methodology has resulted in more than $2.4 billion in financing. Many capital providers have designated Financial Compound as a preferred broker due to our thorough financial underwriting, presentation, and processing. This has helped us to maintain a near 100% client retention ratio in our staff’s 14 years in the business.
Sometimes a workout or modification becomes imperative. Financial Compound has the skills and track record to assist, having performed numerous successful modifications in a distressed context. We have resolved complex financial problems and helped the parties determine the best course of action. With Financial Compound, no up-front fees are required for our assistance with commercial mortgage loan workouts, and we receive compensation only upon the closing of a restructure. This pricing model is an outgrowth of our company philosophy and is unique in the industry. Our long history and relationship with capital providers, coupled with our in-depth market knowledge, have helped us complete restructurings efficiently with senior level professionals at the lending institutions. If we think you’re right, we’re willing to fight. It’s the Financial Compound stimulus plan. When we work out your loan, we make a beneficial impact on the economy and capital markets of greater magnitude than the transaction itself.
It can be helpful to work with a competent commercial mortgage broker. A skilled commercial mortgage broker stays abreast of the most favorable loan terms and understands the right type of lender that fits the financing request.
Commercial mortgage loans are sometimes used to raise cash from a commercial real estate property. For example, a shopping center owner may have an existing $10 million loan, and the shopping center has appreciated in value significantly so that the borrower can refinance for $15 million and utilize the $5 million of refinance proceeds for non-property related needs.
While on the one hand, the positive leverage is quite attractive to borrowers, on the other hand, it may be a good idea to be careful and try to keep the leverage as low as possible. Other considerations for commercial mortgage loans are fixed rate versus floating rate. As a borrower it is important to understand the characteristics of your loan so that their are no surprises, like phantom income, along the way. For example, phantom income can occurs with self amortizing mortgages, such as a 25 year loan with 25 year amortization, where the loan amount and mortgage payments were structured to utilize all of the property cash flow. Once amortization exceeds the interest payment, maybe in year 12 of the loan, then taxes would be due but no cashflow from the property to pay the taxes. Therefore it is helpful for borrowers to understand the cashflow characteristics of the property as it relates to their loan, as well as other considerations including income taxes, real estate taxes, and capital expenditures.