Commercial Property Loans: An Overview
What are commercial property loans and who exactly are commercial property mortgage lenders? A commercial property loan is simply a loan that is made using a commercial property as collateral. Commercial Property Lenders are lenders that specialize in making loans against commercial property. It isn’t altogether different than regular residential loans, just the collateral being presented against the loan is zoned commercial and requires a more diligent and legalistic approach to the lending experience.
Commercial Property lenders must appraise the value of a property not by just the location and current worth, but by future income that would be received through rents and any applicable programs. As commercial properties are oftentimes owned by entities instead of individuals commercial lenders are sometimes stuck in a situation of non-recourse wherein a default against the loan allows them only to seize the property without any future claim against the borrower. They are also unlike a traditional mortgage in that they are underwritten not against the credit of the borrower but against the attributes of the property being mortgaged.
Most commercial property loans are used to buy additional commercial properties, and therefore, can be both beneficial to the borrower or detrimental should the value of the real estate take a nosedive. Like a set of dominoes, once one property is defaulted against more than one piece of property can be seized. On one hand this situation allows both lender and borrower to benefit, the borrower gets to purchase additional properties the lender receives monies from interest and potentially owns multiple properties in a default. On the other hand, should the borrower default he loses more properties and the commercial mortgage lenders gain them, but given the current real estate market value the lenders will sometimes be owners of properties that they are able to do nothing with.
Like most relationships, it is give and take with benefit and risk to both. As it is a relationship, both parties need to be a good fit for the other. Most borrowers in need of a commercial property loan would do well to research a company that can be of the most benefit to their goals and aims, one who would appraise their current properties at full value. They would also want a lender with a good track record and standard interest rate and contract.
