Alternative to Commercial Rehab Or Rehabilitation Loans
Commercial Rehab Loans have historically been the “territory” of either commercial construction loans or commercial hard money. Neither option is ideal for the borrower. The negatives with hard money are evident; they are expensive and often carry harsh terms.
Traditional commercial construction loan also carry negatives. From a traditional banks perspective Commercial Rehab Loans are essentially the exact same as construction loans. Banks require the same type of documentation on commercial rehab financing, (plans, permits, lien wavers, etc) as on ground up construction. Albeit fees and rates on bank construction loans are much better compared to commercial hard money, commercial construction borrowers “pay” for these loans with their time and intense documentation/reporting requirements.
Borrowers that own other commercial property should look into using equity from other property, via the fresh Commercial 2nd Mortgage, to potentially finance the rehabilitation costs. Some benefits of this treatment include:
o Reduce or no reporting to bank.
o No waiting for capital/draws while city and bank approve work.
o No 3rd party or upfront fees.
o Commercial 2nd Mortgage comes in a Stationary Rate 2nd or Equity Line of Credit.
The commercial 2nd mortgage can be a solid alternative; however borrowers should be aware that the loan program does have limitations. Most common complaint is that the rate is typically 1% -2% higher rate when compared to very first lien position traditional bank loans. Also, lending banks adheres stringently to max combined loan to value cap of 75% and will not lend beyond $500,000.
However for the borrower that wields an existing commercial property with ample equity this fresh option can certainly lessen the cargo of the construction loan process.