With the healthiest labor market the country has seen in years and corporate capital expenditures beginning to accelerate, 2015 is expected to be the strongest year for the U.S. economy since the global financial crisis. As the economy continues its successful recovery in the U.S., the National Association of Realtors is also predicting the commercial real estate market to gain stronger footing in 2015.
While buying commercial real estate can be a long-lasting and profitable investment, it also comes with certain risks right from the very beginning. Securing a commercial real estate loan is more difficult than most would think, and even as the market gets stronger in the coming year, it will still pose a challenge for many looking to move into commercial real estate. Below are several tips for securing a commercial mortgage-backed securities (CMBS) to make the process as smooth and stress-free as possible.
- Apply Early – The first problem that many people run into when applying for a CMBS, which is a security backed by commercial mortgages, is that they don’t receive the loan as soon as they expected to. Many lenders tend to underestimate the amount of time it will take them to process the loan, sometimes saying it will take as little as 45 days. In reality, it can take up to three months for the entire process to be complete. To avoid complications down the road, it is best to start applying for a commercial real estate loan about 90 days before any purchase transactions are to be made.
- Apply to Several Lenders – Applying for a home loan is generally a straightforward process, and home owners should know fairly quickly whether or not they have been approved for the loan. This is not the case for commercial real estate loans, which tend to be quite unpredictable. Commercial lenders base their underwriting of a loan on different factors than home mortgage lenders do, and many of these factors are often subjective. If the lender decides that they don’t like where the property is located, they could turn down the loan at the last minute, leaving the borrower in a financial crisis.
- Apply to Local Lenders – Once a commercial lender makes a loan to a property owner, they become invested in that property. If trouble should arise down the road and they end up foreclosing on the home, it is easier if the lender lives near the property. Therefore, lenders benefit from properties that are located in or nearby their local community, giving borrowers a bargaining tool to work with. Borrowers can insist that local banks give the better commercial mortgage rates than lenders who are far away. Borrowers are also more likely to get approval for riskier loans by a local lender than one who is not in the area.
Obtaining a CMBS may be a difficult process, but the tips above can help borrowers avoid the risks and stresses that come with securing a commercial real estate loan.