Commercial Key Concepts
Commercial real estate finance has a language of its own. Understanding these concepts will help you have a productive discussion and comparison during the Letter of Interest stage with CCG.
Amortization Period
The length of time mortgage payments are spread to calculate the monthly payment. A fully amortized loan is paid off at the end of this period; a partially amortized loan has a balloon payment at the end. This shouldn't be confused with the loan term — a commercial mortgage can commonly have a 25-year amortization but a 10-year term, meaning payments are spread as if paying to zero over 25 years, but the loan is due at year 10, leaving a balloon payment.
Multifamily properties will most often have a 30-year amortization, and core commercial or owner-user 25 years. A lower amortization is more attractive to lenders since the loan pays down quicker, but creates a higher monthly payment — which can reduce maximum loan qualification on cash-flow-restricted properties.
Fixed Rate Period
The period of the loan where the interest rate is fixed. Most commercial mortgages are “hybrid” loans, fixed for only a portion of the full term — most commonly 5, 7, or 10 years. The longer the rate is fixed, the higher the rate tends to be. In rising rate environments, lenders are less inclined to offer longer fixed periods; in declining environments, they'll often discount longer fixed programs since their margin is highest at that point.
Interest Rate
Usually the most discussed loan term in the process. Rates can be fixed, adjustable, or hybrid, and range from roughly 5% for larger multifamily and agency-backed properties in primary markets up to 14% for private and hard money debt on higher-risk deals. Rate correlates directly to risk — strong, stabilized requests earn lower rates, while higher-risk requests require a higher rate to justify the lender's offer. Lenders typically take an index rate (10-Year Treasury, SOFR) and add a margin reflecting risk and profit.
Rate Lock
Once a final interest rate basis is established, the next consideration is a rate lock. Not all lenders offer them; those that do typically commit to 60 days, sometimes negotiated to 90. The typical deposit is a 1.00% fee upfront. Should the lender not approve the loan, the deposit is returned in full; if the borrower cancels mid-processing, the lender can keep the deposit.
Loan-to-Value (LTV)
The percentage of debt compared to the overall value of the property — the inverse of the equity percentage. A $6,000,000 loan on a $10,000,000 property is 60% LTV. Loans can go as high as 90% LTV with government financing. LTV is limited both by lender comfort level and by the property's cash flow, which is analyzed through ratios like DSCR to calculate the maximum loan amount.
A related concept is Loan-to-Cost (LTC), considered when a property is new construction or has undergone major renovation in the last 24 months — typically capped around 85% of total cost, which can result in a lower maximum loan than LTV alone would suggest.
Assumability
An assumption clause allows another person to take over a commercial loan's terms and responsibility from the original borrower, typically for a 1.00% fee and the lender's underwriting approval. This can be valuable if the market has shifted and rates have risen, letting a buyer avoid a costly prepayment penalty by assuming the existing mortgage instead.
Single-Asset Entity
A legal ownership entity — almost always an LLC — that owns the commercial property and nothing else, commonly set up to protect personal liability and for tax purposes. On recourse loans, owners still sign personal guarantees. Non-recourse loans from CMBS and agency lenders typically require single-asset ownership, since it simplifies securitization and foreclosure.
Impound Accounts
A reserve account set up by the lender to collect funds for a specific purpose — most commonly property taxes and hazard insurance, paid monthly alongside principal and interest. Impound accounts may also be established for known upcoming events, like a major tenant lease expiring, or for deferred maintenance items like a roof replacement noted during inspection.
Loan Conditions
Closing conditions the borrower must satisfy, some known upfront and some added after the lender's full due diligence. Standard requirements include a minimum DSCR, maximum LTV, clean title, and hazard insurance. Conditions can be “prior to approval,” “prior to docs,” or “prior to funding” — and are generally the most negotiable of all loan terms.
Commercial Loan Costs
Commercial loan costs are higher than residential due to complexity, and are typically charged upfront rather than built into the rate. Commercial appraisals average three weeks and cost 2-3x more than residential. Most commonly, costs include a 1.00% point origination fee to the lender, the cost of property reports, and a processing fee covering underwriting, documents, and legal review.
Post-Close Requirements
Requirements imposed after closing, both standard and situational. Standard requirements are usually annual reporting — a rent roll, income statement, and sponsor tax returns for the lender's audit purposes. Situational requirements are case-by-case, such as evidence of a repair being completed, or quarterly vacancy reports on a property with a history of high vacancy.