Do any of you handle commercial properties, such as mixed use residential/commercial or even retail properties?

Asked by J Mario Preza, Daly City, CA Thu Dec 9, 2010

I have a client looking to buy a mixed use or store-front property, however, he's thinking he'll finance it the same way he would finance the couple of houses he owns. I have explained that commercial loans are different. If you've done commercial sales, I would like your insights into what is different and how you see this market in your area. Thanks.

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Jim Banks, M…, , San Francisco, CA
Wed Dec 29, 2010
BEST ANSWER
Mario,
I have done both commercial and residential financings. Major difference is primary source of loan repayment and how lenders go about evaluating it. For residential loans, buyer's income is primary source so lenders look to the amount and stability of his income, then borrower's credit history, assets, etc. For commercial loans, rental income is seen as primary repayment source. (Even if building is owner/user occupied, lenders typically look beyond owner's business income and focus on potential "market rent" for building to establish credit worthiness of the loan.) Evaluation is done by analyzing building's operating statements, where rental income is reduced by operating expenses, vacancy factor, etc to arrive at a net cash flow number, which lender uses in calculating Debt Service Ratio, as noted below. Lender will also require borrower to guarantee commercial loan to ensure they have recourse to his other assets. For any deal, finding the right lender is key. Let me know if I can be of any specific help. Happy New Year!
0 votes
Jack Murray, Agent, San Francisco, CA
Thu Dec 9, 2010
Hi,
It depends on the property, number of units, percentage of commercial to residential, among other things. SBA loans are available for owner user with higher leverage. But, typically without paying a premium on your lending rate, the properties income will need to meet a DSR that conforms with the lender's criteria. (DSR is debt service ratio). In the calculation, it will include the lender's estimate of expenses such as management, vacancy loss, etc. (Not justthe marketing expenses that are advertised).
It is best to direct the inquiry directly to multiple commercial lenders and the answers will be somewhat property type specific, as mentioned above.
Jack Murray
Broker~Associate
Prudential California Realty
415-664-0800
DRE#01298765
1 vote
, ,
Fri Dec 17, 2010
The first thing you need to do is see if you can find six recent Comps on like property within a maximum radius of 5 miles.

Happy funding, Rudi
Web Reference:  http://www.umboc.com
0 votes
Lance King, Agent, San Francisco, CA
Thu Dec 16, 2010
Commercial financing is different. Best thing you can do is talk with some of those lenders to get a feel for how they work.
0 votes
Monique and…, Agent, Beverly Hills, CA
Thu Dec 9, 2010
Hello J. Mario,

I have done Mixed use before the mortgage meltdown and was able to get my client into a residential loan. Not possible now. There isn't as much mixed use in LA as say there is in SF. From what I have seen most mixed use will need about 40% down. For mixed use in premium areas the market is still strong. There again aren't as many options in the areas with good neighboring residential neighborhoods. Inventory is low. Prices have dropped but still strong.

Monique Carrabba
The Carrabba Group
Keller Williams Hollywood Hills
mcarrabba@kw.com
(323) 899-2900
0 votes
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