Colin Dubel is a commercial mortgage adviser with Charter Capital Group, based in Southern
California. He specializes in working with owners, investors and their consultants to arrange
financing for all commercial property types nationwide, including multifamily properties.
Connect with him on LinkedIn. Reach Dubel at email@example.com or (949) 735-6415.
Continued on Page 110 >>
“The biggest difference between
residential and multifamily
commercial lending is the lack
of uniformity among commercial
<< Multifamily continued from Page 107
Many current and past clients of residential originators probably own commercial property or know somebody who does. Learning to navigate the waters of multifamily financing will keep your reputation intact as a mortgage
expert, and can provide business opportunities that may be overlooked by
colleagues and competitors.
Before getting your toes wet, however, you will need to know the primary differences between residential and multifamily lending. You also
will need to understand the basics of commercial lending so you can help
prospective clients who are looking to invest in multifamily properties.
Residential versus multifamily
The biggest difference between residential and multifamily commercial
lending is the lack of uniformity among commercial lenders. Rather than
standardization, there is more specialization. Plus, multifamily lending
has a lot more factors and questions to consider during qualification, and
additional parties often get involved — including attorneys, property
managers and accountants.
Most new multifamily investors also are surprised to learn that 30-year
fixed loans are not typically available for commercial properties. And,
geography can play an important part. Eligibility and loan terms for multifamily properties can change drastically from one market to the next,
unlike residential loans. Loan structure and availability also can be different for every unique transaction.
In addition, commercial appraisals and other loan costs can be comparatively higher than the residential equivalents. Although lenders will
do a full review of the borrower, as in a residential deal, a major focus of
the qualification criteria is on the investment property. Besides standard
appraisals, there will be property-condition and environmental inspections, a market review, detailed cash-flow analyses, tenant-lease assessment and other due-diligence items to help the lender determine any
The entire process for a permanent loan usually takes 45 to 60 days from
application to close, and the process can change from one transaction to
the next. Commercial loans do not have the same process conformity as
residential loans. Purchases that need to close quickly can be arranged
through short-term bridge loans, however, which can close in as little as
Other significant differences between residential and commercial
lenders include the sources of their capital, their lending parameters and
their underwriting. Many commercial lenders don’t publicly advertise
their programs, and their loan appetite and underwriting guidelines can
change frequently as the market changes.
Developing strong relationships with these lenders and tracking
changes to their parameters and underwriting guidelines is a valuable
asset on the commercial side. There is much more gray area in multi-
family lending, which allows you to use mitigating factors and reasonable
negotiation to benefit your clients with respect to their loan requests.
The most competitive multifamily loans have a fully-amortized 30-year
structure. Many will be hybrid adjustable rate mortgages (ARMs), however, that have fixed rates for the first part of the loan term, and then either
roll into an adjustable period or have a reset at the end of the fixed period.
Interest rates will be higher the longer that rate remains fixed, and
some lenders will offer interest-only periods during the first part of the
loan to help investors maximize cash flow. Select multifamily properties
can qualify for a 20 percent minimum downpayment, but most programs
have a 25 percent minimum floor.
Multifamily loans can be made to individuals, but sometimes it is recommended or even required to vest the loan with a borrowing or single-purpose entity such as an LLC, partnership or corporation. Loan amounts
and amortizations can be reduced based on any perceived lender risk
(e.g., property and/or market concerns, borrower financial issues, etc.)
or at the request of the borrower to minimize total interest paid.
Almost all multifamily loans will have a prepayment penalty, which is
either determined by a stepdown structure or yield maintenance. This
penalty can be mitigated by defeasance. Many loans are full recourse,
meaning each sponsor will personally guarantee the loan, but they can
be non-recourse with certain borrower and property qualifications.
Commercial lenders come in all shapes and sizes. Your relationship with
these institutions is the most important piece of the puzzle. Learning
how multifamily loans are structured will open up new conversations
and opportunities, but having the experience to confidently navigate
the commercial lending world and solve the issues that arise during the
process will actually close those transactions.
Many banks and credit unions have specialized commercial lending
programs, but some of the most competitive capital sources come from
life insurance providers, commercial mortgage-backed securities (CMBS)
conduit lenders and select agency-lending institutions. In today’s lending
market, debt funds and private investors are becoming increasingly more
popular because they provide flexibility in a time when bank regulations
and under writing guidelines are becoming stricter and more unpredictable.
Many commercial lenders will only work through approved correspondent brokerage companies. This helps to minimize the number of
unqualified loan requests and provides lenders with loan-servicing
assistance, including inspections, payments and annual reporting.