The property-insurance requirements and endorsements can also be more comprehensive than bank requirements, adding to the annual premium as well as additional title-insurance endorsements costing more at closing. All this, of course, is added to the loan fee, which can vary based on loan amount but is typically 1 percent. Prepayment penalties usually yield maintenance but can be step-downs and other structures.
Because of these costs, most life-company loans are larger ($3 million-plus) to make the fees cost-effective. For the smaller loan, there are a few smaller life companies that don’t require surveys, legal fees and property-condition reports, which significantly reduces the costs. Loan amounts under these programs start at $500,000 to $1 million, and still offer longer fixed-rate terms and upfront rate locks, although they’re typically full or partial recourse. Most life companies fund exclusively through correspondent mortgage bankers.
Conduits are similar to life companies in many respects such as long-term fixed rates typically in the low 4 percent to low 5 percent range, non-recourse, similar costs and fees, but with mainly defeasance prepayment penalties. Expect legal fees to approach $20,000.
The biggest difference is the conduits typically prefer loans starting at $5 million. In addition, commercial mortgage-backed securities (CMBS) lenders do not offer early rate locks, have no upfront refundable deposits, and will do loans in secondary and tertiary markets. There’s one conduit that will write loans starting at $1 million with lower fees, and a few that will go down to $3 million. Most conduit loans are funded through the use of mortgage brokers and mortgage bankers.
There’s still time to take advantage of the low interest-rate environment, and there’s a myriad of options for properties with good cash flow and acceptable leverage. While working directly with your local bank works for many, employing a professional mortgage banker or broker can open up other excellent possibilities from lending companies that may not be local but will lend in your area.
David Smyle is a vice president of Pacific Southwest Realty Services, a San Diego-based commercial mortgage banking firm founded in 1972. The company has a servicing portfolio of more than $4.3 billion, offering life-company financing from more than 18 investors as well as conduit, commercial mortgage-backed securities loans, and bank and credit-union options. For more information, call 619.602.6365; visit www.psrs.com.