First Mortgage:
Fixed Rate Commercial Mortgage products are mortgages that have a fixed interest rate and payment for the full term of the loan. These loans make it easier to budget, especially over the long term, and offer stability across an ever-fluctuating market.
Typical properties include: Multi-family, anchored, unanchored retail, full and limited service hotels, offices, light industrial, self-storage, and senior housing.
Term: Typically 5 to 20 year maturities.
Rate: Interest rates set at spreads usually ranging from 150 to 275 basis points over corresponding Treasuries, depending on property type and underwriting criteria.
Loan to Value: Subject to underwriting criteria, generally up to 80% LTV.
Additional features such as: Prepayment, assumption, liability and amortization will be thoroughly explained once you have contacted a lending representative from your free matched list of funding sources.
Second Mortgage:
Commercial second mortgages are normally used in conjunction with a new first loan. Typically, the second mortgage will have a term of no less than five (5) years with interest only payments. While second mortgages can be critical in some situations, you must carefully consider your ability to service both loans.
There are many clear advantages to this type of creative financing. The most frequent use is a second mortgage that reduces the LTV (loan to value) of the first loan in order to allow you to more easily qualify for the loan. An example would be where the primary lender (first mortgage holder will only lend 70% LTV and you only have a 20% down payment. A second mortgage can be used to make up the difference.
There are a variety of options available to you such as: interest only payments, annual payments, exit fees, etc. that will help keep your immediate payments down and defer the costs of the second mortgage. The idea is to give the property time to appreciate and thereby allow you to refinance and consolidate both the first and second mortgages at a later date at a then lower LTV.
Mezzanine Financing:
This is the term associated with the middle layer of financing in leveraged buy-outs. In its simplest form, this is a type of loan finance that sits between equity and secured debt. Because the risk with mezzanine financing is higher than with senior debt, the interest charged by the provider will be higher than that charged by traditional lenders, such as banks. However, equity provision – through warrants or options – is sometimes incorporated into the deal.
Bridge Loans:
Short-term loan that is used until a person or company can arrange a more comprehensive longer-term financing. The need for a bridge loan arises when a company runs out of cash before it can obtain more capital investment through long-term debt or equity. Short-term financing which is expected to be paid back relatively quickly, such as by a subsequent longer-term loan. Also called swing loan or bridge financing.
Hard Money:
Hard money loans are loans in which real estate serves as the collateral asset. It is most commonly used as a type of bridge loan for temporary financing. As with other collateralized loans, the size, rate, and length of a hard money loan are determined by the borrower s equity in the asset, the volatility of the asset and marketplace, and the financial standing of the borrower. Hard money loans are funded for business and personal use. The real estate asset may be business or personal property.
Small Business Administration (SBA):
A federal agency authorized to make loans to small businesses, including loans for land purchase and construction. To be eligible, the borrower must have been refused the loan by a private lender.
Joint Venture:
Joint venture financing for commercial property financing is a means of structuring a mortgage in order to help you, the client, maximize cash flow potential. How? By "teaming" you with a lender as an investor.
Definition of a joint venture: similar to a partnership in that it must be created by agreement between the parties to share in the losses and profits of the venture. It is unlike a partnership in that the venture is for one specific project only, rather than for a continuing business relationship.
In this case, the joint venture concerns commercial real estate and the lender-borrower relationship. Borrowers do not always start out looking for partners, but sometimes recognize the value of sharing equity over "straight" debt financing.
Structured Joint-Venture Financing can be complicated and is not appropriate for all projects. Provide us with some information and we can give you a free matched list of commercial real estate lenders and equity investors. When contacting any of your matched funding sources, be sure to inquire about joint venturing.
