In Commercial Lending, Not all Transactions Fit All Lenders

  • First Bank
  • 10/17/2018
  • Business
  • Article

By Tom Lynn, SVP, Senior Group Manager, First Bank Commercial Real Estate
Originally published in the San Francisco Business Times

Since there are so many variables in commercial real estate (CRE) lending, not all transactions fit all lenders. This raises many questions for investors and developers who are seeking financing.

As a trusted advisor, some common questions asked by many borrowers are:

  • When seeking a commercial real estate loan, what’s your typical deal size? Deal sizes are dependent on the size and risk tolerance(s) of the lender. For example, at First Bank, the size of loans generally don’t exceed $15MM, although exceptions can be made. • What types of properties do you finance? Most real estate investors and developers want to purchase properties like office buildings, industrial properties, retail space, residential developments, and storage buildings. Often, lenders will also provide financing for specialty niches like churches and senior care facilities. Although First Bank finances all of these types of commercial real estate properties, if there’s a property we don’t typically finance, there’s often another lender that’s willing and able to do so. Always shop around and discuss your options.
  • Do lenders rely more heavily on property quality or borrower’s strength when accessing their lending requirements? Some lenders tend to emphasize the quality of the real estate over the financial strength of the borrower, while others look more to the borrower than the property. Some rely on both. First Bank relies on both, with a stronger emphasis on the property.
  • What are the loan sizing standards? Term debt is primarily underwritten on cash flow coverage generated from the property and the loan-to-value (LTV) ratio. Since the Great Recession, cash flow coverage has come much more into favor over LTV. A method that’s becoming more common for underwriting cash flow coverage on a commercial real estate loan is the debt yield calculation, or a calculation that’s derived by dividing the net operating income by the loan amount secured by the commercial property. If that percentage is 10% or higher, a lender will typically be happy with the loan size.
  • What pricing standards should borrowers look for in a commercial real estate loan? Fixed and variable rate pricing is usually offered, and there is usually a loan fee associated with the financing in a range between 0.25% and 1%. As when making any purchase, it’s prudent to check out the pricing from different lending sources in order to determine if you’re getting a competitive rate.
  • What’s the typical processing time? A typical processing timeframe is 60-90 days, if all of the information needed from the borrower is received in a timely manner.

As always, your trusted advisory team at First Bank is here to help answer any of your commercial lending questions.