Commercial Loan Rates, Scattered and Unpredictable

Borrowers are constantly trying to figure out what is going on with commercial loan rates. The answer to this question is completely scattered. We are seeing rates come in on the same loan request with a 200 – 400 basis point difference… And what we are talking about here is loans less than five million and non multifamily. Plain old retail, industrial, office, etc, that are either rented out to a “mom and pop” or are occupied by the borrowers business. Commercial loan rates now range from 4.75% to 7.5% for most deals. This is obviously a huge range and let me clarify the 4.75%. This is only on a quarterly adjustable rate. Normally tied to Prime, which as of this writing is at 3.25%. In addition, this is only for owner occupied properties. For owner occupants that want a fixed rate, meaning 3 -5 years, they should end up being in the mid 6% to 7%’s.This comes as a shock too many borrowers who are listening to the media discuss how low residential rates are. Commercial rates in general are up by 200 basis points or more than residential counterparts and getting fixed rates is becoming harder on a weekly basis. Many banks are leading with adjustable rates with a “take it or leave it” attitude.  Investment properties are an entirely different story. On this side of the business the real carnage is starting to show itself. Rates are not even a questions. It’s really “will this loan really close.” Will it really fund? We are seeing loan to values drop to 50 – 60% with most banks, coupled with property values declining. Value is killing many, many deals.Other issues like debt coverage ratios and minimums on lease term being extended to 5 years, is hurting a lot of requests. Many banks are literally underwriting the file based on the borrower other source of income. If they can’t carry the debt, if the tenant goes away, it won’t close.   Assuming the request is one that fits borrowers should expect commercial loan rates in the mid to upper 6%’s to low 7% on a 5 year fixed, 25 year amortization schedule. Borrowers that are in a position to wait for a year or two, should. When the market returns and it will, borrowers will have more options and more control of their situation. Until than commercial loan rates will be random and scattered. 

» Tags: , , , , , , , , , , , , , , ,

Comments are closed.