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Commercial Real Estate Lenders - What Commercial Real Estate Lenders Do

property loan looking residential

At the simplest level, commercial real estate lenders are institutions that make loans on properties other than personal residential real estate. Whether one needs a loan on a 5,000 square foot medical office, for a 100-unit apartment building, for a strip mall, or even for a large piece of land which will someday become a residential subdivision, all of these are considered commercial real estate.

Commercial real estate lenders typically look at transactions in one of two ways. Some transactions are on investment property. With these, the lender’s primary concern will be whether the net income from the property (rent less expenses such as property taxes or repairs) is more than the payments on the loan. If the property has $100,000 a year in debt service and produces $135,000 net income, it is a relatively safe bet. Some will even completely disregard the borrower’s situation because the property, not the borrower, ultimately pays the loan

The other way of looking at a commercial transaction is when the real estate is going to actually be used. This could be when an accountant wants to buy him or herself a building for their practice, or when a developer is looking to pay for construction for a building that will ultimately be sold. In either case, the person is looking for an institution to give them money which they will be paying back, ultimately, out of their pockets. In this instance, although the lender will be concerned that the collateral is adequate, they are more concerned about the borrower’s ability to repay the loan. This is akin to a residential mortgage where the lender will scrutinize the borrower, his or her income, his or her record of paying loans and his or her savings to determine whether or not to lend the funds.

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