How to Finance your Commercial Real Estate: Investment in Today’s Market

Over the past few years, United States homeowners have enjoyed easier access to mortgage capital than ever before. As the mortgage banking industry has become increasingly more comfortable with consumer credit risk, residential mortgage lenders have been able to offer an abundance of innovative loan products, including high Loan-To-Value, Interest Only, Option ARM, alternative doc, and sub-prime loans.

But while the residential mortgage industry has trended toward easier and more attractive credit products, the commercial property investors have found it increasingly more difficult to qualify for a mortgage.

Why the incongruence? First and foremost is the very nature of the primary institutions that provide commercial mortgage loans —commercial banks. Historically seen as the source of credit for commercial real estate investors, commercial banks tend to be rather conservative, risk averse institutions. And, since they are highly regulated by government agencies, banks are not afforded the luxury of adopting the flexible underwriting standards prevalent in residential lending. The result is that high LTV, interest only, and sub-prime products are generally not found in the commercial banking industry. This is where online lending networks come in as viable sources to find and secure funding for commercial mortgages. Finding lender sources using just one application, which is stored in a secured online vault, makes the entire application process easier and more efficient.

In addition, commercial banks have had difficulty adapting lending programs to the red hot real estate market. In today’s market, where investors are purchasing rental properties at historically low rates of return in hopes of property or rent appreciation, it is increasingly less likely for a property to generate enough cash flow to sufficiently cover the mortgage payment. The problem for commercial banks is that when assessing whether or not to make a loan, they will focus only on the cash flow of the property itself, rather than the financial strength of the individual who owns the property. Most banks require the net rental income, generated by a property, to exceed the mortgage expense by more than 20%. If this condition cannot be met, the bank is forced to either turn down the loan or lower the loan amount to an unacceptable threshold.

This can be extremely frustrating for investors who can demonstrate good credit, a high net worth, and/or a steady income stream from other sources. They may wonder – and rightly so - why qualifying for their residential loan was such a breeze, yet they are declined by a bank for a commercial mortgage.

The solution for commercial real estate investors who do not meet the bank’s strenuous conditions is to find alternative, non-bank commercial lenders who take a more pragmatic approach to qualifying borrowers. Locating such lenders is made easier by using online financial networks such as iBank.com, where Bayview Financial, LP is a top commercial lending institution partnered with the network.

In recent years, alternative, non-bank commercial lenders such as Bayview Financial, LP have emerged as industry leaders. Bayview Financial’s Commercial Direct mortgage program considers the credit strength of the property owner, instead of simply analyzing the cash flow of the property in isolation. In addition, lenders such as Bayview offer borrower’s attractive loan terms not found at traditional banks, including 90% LTV, Interest Only loans, 30 year terms, and no balloon requirements. The result is a commercial mortgage product that feels just like a home loan—something commercial borrowers have sought for a long time.