5 Essentials to Save you Time & Money on Term Debt
The RE Finance landscape for commercial and Multi-Family properties in California has changed constantly over the last 2 decades. Here are 5 essential modern tips for commercial and multifamily property owners to use to save time and money while securing term debt for their property.
1. Not All Lenders are Created Equal: There are over 200 Bank & Credit Unions and over 4,000 licensed private lenders in California which includes Public REITs, Private REITs, Family Offices, Insurance Co’s, and other specialty lenders…). Just because it has the word ‘Loan’ in it’s name, does not mean that all terms come back equal. Banks and Private Lenders have their preferred ‘loan type’.
For Example: Some Banks excel at lower LTV (Loan to Value) Loans and can compress their spreads down for lower leverage loans. If you have a lot of Equity in a property, and are not looking for a large ‘cash out, this is an ideal option for you. (potentially tightening your spread by 100bps or 1%)
For Example: Other Lenders excel at say owner-user loans (for commercial properties) with a streamlined 25 year loan products at an 80% LTV… Or agency loans (FannieMae, FreddieMac or HUD) for Multifamily properties.
The better that you understand a Lender’s preferred loan type, the more time and money you can save.
2. Expand your Outreach without taking too much time or sharing sensitive info. Generally, when property owners are ready to consider refinancing or securing a term loan they’re mainly conversing with 2-3 lenders. Whether you are seeking a term loan as simple as $1.4M or as complex as $50M, we’d recommend expanding your net to cover more lenders. It is easy request a soft term sheet by sharing just 3-5 docs including a current rent roll, 12 months PnL, a redacted Balance sheet/PFS, & Appraisal…
If you are looking for additional Bank and Credit Union Lenders, you can use this FDIC’s Market Share tool, which allows users to sorts lenders by State, County & Deposits. With a few terms sheet in hand from an initial set of lenders, you’ll be ahead of the game in selecting the top lender to complete your loan package.
3. Interest Rates. There’s $4.75T in commercial debt outstanding in the U.S.A. right now with more than $2 Trillion in MultiFamily debt outstanding. Too often the Real Estate Industry can confuse borrowers with incorrect information on Interest Rates. The result can be windfalls for Lenders and overpaying for borrowers.
When considering term financing, use this simple tool from Chatham Financial to review current & future interest rates. As illustrated in the Futures Chart above, the Market anticipates that SOFR (a short term borrowing metric) will fall by another 40~ BPS by the end of 2026, and that Long Term Yields (those 5, 7, 10 & 30 Year Treasuries that underpin many Term loans) will increase slightly over the next decade.
4. Dedicate time to visualize an Ideal Financing Scenario before reaching out to any Lenders. Are you looking to pull equity out of a property? Do you want to reduce your debt load to increase annual cashflows? Have you been neglecting some reinvestments or repairs that need to get done? Is the property next door that you’ve always wanted to buy finally for sale?
It is incredibly helpful to spend time thinking as a capital allocator and sketch up the best decision for you, your portfolio, and your family or business’s long term wealth. Plus, it will save you time while sorting through the right Lenders for you.
5. Negotiating Terms. Generally, it’s best to wait until you have multiple pre-approved offers before diving deep into lender negotiations. We trust that every lender has been asked for a lower spread, but there are many other important ways to save time and money on term loan like the loan size and length, prepayment penalties, and deposit relationship, which may be more important to you…
