Choose your commercial mortgage lender carefully. Properties differ. So do lenders.
Choose your commercial mortgage lender carefully. Commercial real estate spans a broad range of property types spanning all manner of industry classifications, from high rise apartment buildings to big box retail outlets. Consequently your financing needs, and the ability of any given lender to meet your needs will vary considerably.
Some lenders are very comfortable lending to an owner of an apartment building. Others may not be. Some lenders may be very comfortable lending to an office building owner, while others will shy away. Why? It may be as simple as the lender having a particular bias as to perceived risk (perhaps they incurred loan losses in a particular industry in the past). Perhaps there is a regulatory or policy requirement for the lender to diversify their loan portfolio risk by avoiding certain industries until their book of business (their real estate loan portfolio) is in balance (e.g. not over-weighted by a high proportion of say, retail real estate loans).
Identify the lender most likely to finance your type of property!
Whatever the reason for particular lender preferences, it makes sense to focus your valuable time on approaching lenders who are aligned with and willing to consider your particular financing requirements. By that we mean a lender who is:
i) comfortable with the location of your property;
ii) typically lends in a dollar amount range that would satisfy your requirements; and
iii) able to process your loan expeditiously.
Different lenders have differing appetite for risk. An “A” lender (typically a major Bank, or Life Insurance Company) will offer more competitive rates, but will generally be more particular as to the type and quality of asset, its leasing characteristics, and the credit worthiness of the applicant. They will typically have a lower tolerance for loan risk, and often favour or have the capacity for individual loans which are larger in size.
A “B” lender (typically Trust Companies, larger Credit Unions, smaller Life Insurance Companies, and other specialty lenders) may often be more flexible in respect of property type and overall condition, however higher pricing and more stringent loan conditions, are likely. Often they will be more receptive to granting smaller individual loan amounts. While their risk tolerance may be greater, their rates may be higher than rates of “A” lenders, as their provision for loss (either on an individual loan, or on a loan portfolio basis), which is a component of how a lender sets their mortgage rate, would be higher than that of an “A” lender.
Take the time to research lender preferences. It will save you time, and money. An experienced commercial mortgage broker can be of considerable assistance in these situations.