Though it’s outside the normal scope of what I’d intended to write about herein, I’m going to close on a commercial mortgage today and thought I’d share the story. Three years ago, my business partner and I purchased two mixed-use buildings in Fells Point, a neighborhood in Baltimore, MD. Each building consists of a commercial/retail space on the first floor and an apartment on the second and third floors. After renting our office space for three years, we decided to buy our own space, and these buildings (technically two, though they appear to be one large building) were perfect. At any rate, we secured great financing and the properties have proved to be a great investment. The loan, however, was a three-year balloon and now it’s time to pay or re-up with SunTrust Bank. They’ve treated us well over the years and while this latest re-finance hasn’t gone as smoothly as we would have liked, the end result will still be a new 3-year balloon with a good rate and minimal fees. In the end, the deal was better than the quotes we received from two other bankers and a broker.

Of course, the closing was supposed to be yesterday, but in my experience of buying and selling real estate, only once has the closing occurred at the time for which it was scheduled and I’ve had the actual date changed on me before as well. More importantly, I’ve learned through this round of financing the difference between trying to take cash out on a commercial property vs. a residential property - namely, it’s more difficult. Initially intending to take some of equity as a tax-free cash payment, we were surprised to find SunTrust wanting to root around heavily into the operations of our primary businesses, rather than basing the loan on its collateral, i.e. - the buildings. Given their cash flow, we could have increased the commercial mortgage by a factor of 25% and still have had enough cash flow and reserves for the debt service. SunTrust, however, disagreed, though I can’t now figure why they asked for copies of our tenant leases if they weren’t going to use them in determining the feasibility of our cash-out request…I believe, from what I’ve seen and heard, that SunTrust, and perhaps many other banks, are tightening up heavily in their commercial lending and, to a slightly lesser extent, on residential underwriting as well. Ours seems to have been a case in point. Anyway, I’ll come back in a few hours with a new shiny commercial mortgage under my belt and if there are any adventures in the closing process, I’ll write again. Otherwise my next post will return to the residential side of things.

Tags: balloon mortgage, baltimore real estate, cash flow, commercial mortgage, debt service, fells point real estate, suntrust bank

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