Commercial Financing Requires a Different Analysis
Commercial real estate does not fit one standardized mortgage model.
An owner-occupied office, apartment building, retail property and industrial building can have very different underwriting considerations.
We begin by understanding the property, transaction, borrower and intended use of the financing.
Property Cash Flow and Debt Service
For income-producing properties, lenders generally evaluate whether property income can reasonably support the proposed debt.
This can involve analysis of rents, vacancies, operating expenses and net operating income.
The resulting debt-service metrics can materially affect the maximum loan amount and available terms.
Owner-Occupied Commercial Property
Commercial property occupied by the borrower's business may be evaluated differently from a purely investment property.
The operating business's financial performance can become an important component of underwriting in addition to the real estate itself.
Commercial Loan Structures
Commercial loans can differ substantially in amortization, maturity, fixed-rate period and other terms.
A loan may amortize over a longer period while maturing earlier, resulting in a balloon balance that must eventually be refinanced or repaid.
For that reason, borrowers should compare the complete structure rather than focusing solely on the initial interest rate.
Purchase, Refinance and Equity
Commercial financing may be used for acquisition, refinancing existing debt or accessing equity where permitted.
The appropriate structure depends on value, cash flow, existing liens, borrower objectives and lender requirements.