Commercial Mortgage Types
Commercial real estate loans are primarily classified by either their stage or their asset class — each carries different risks and considerations that shape how a lender structures an offer.
By Loan Stage
Rescue Financing
Also commonly referred to as “hard money” financing. While bridge financing involves an investor with a solid plan and exit strategy, rescue financing may not be as clean cut — this stage is for properties that are heavily distressed with loan qualification issues and no clear path to institutional financing. Due to the high risk, these loans are typically only financed by private lenders that require additional equity and higher interest rates.
Bridge Financing
A niche type of lending usually provided by debt fund and private lender sources. Bridge loans bridge the financing gap between a property's current situation and the end result — a vacant building needing financing until lease-up, or a distressed property needing funds to complete a rehab stage. Bridge loans are for requests that can't qualify yet with institutional lenders but are more stabilized than rescue financing.
Construction
Used for commercial development projects to provide investors with funds to complete a property project. Funds are distributed to the developer in draw phases to mitigate risk to the lender, who stays in frequent contact during the project. There's more in-depth scrutiny in evaluating these projects due to the inherent risk of the project failing before completion.
Refinance
A common stage to request commercial financing, including “cash out” refinances which tap into a property's equity to provide proceeds to the borrower for investment or personal use.
Acquisition
The most common stage an investor might be seeking new financing for a commercial mortgage, with down payment equity typically coming from the investor with cash or 1031 exchange proceeds from the sale of another property.
By Property Type
Owner-User
A flexible property type term — coined “owner-user” because loan qualification is based on the company financials of a business owner, as opposed to an investment property's Net Operating Income. This can be industrial, office, retail, or a self-storage facility operated by the owner.
Retail Property
Properties where you shop, dine, and experience — malls, strip centers, neighborhood centers, outlet malls, and free-standing buildings. Usually multi-tenanted and often anchored by a large tenant such as a grocery store or pharmacy.
NNN Leased
A special sub-type of retail (sometimes industrial) property. NNN refers to a single-tenant lease structure where the tenant handles all expenses and passes through a simple rent amount, making the investment “hands-off” and attractive to novice investors.
Mobile Home Parks
Organized plots of land with a tenancy of detached mobile homes, where the investor owns the land and rents the space. Can have high profitability given a low expense ratio, but can run into hurdles based on location, tenant transiency, or park quality.
Self-Storage Facilities
Lease space to individuals for storage. The only property type that can be financed as both an investment property or an owner-user property, since self-storage investors both own the property and manage the operations.
Hospitality
Predominantly hotels and motels, but can also include golf courses, event centers, and amusement facilities. Usually owner-user rather than investment property, with heavily specialized lending sources and conservative underwriting.
Special Purpose
A catch-all for property intended for a single limited use — churches, car washes, museums, bowling alleys, gas stations, wineries. Limited liquidity for a lender upon foreclosure means only agency or private money lenders typically finance these.
Raw Land
The uncollateralized, underlying dirt of a property, purchased for storage or a pending development project. With no structural collateral or income value, raw land is the most difficult and expensive property type to finance.
Industrial Properties
Categorized into manufacturing, storage & distribution, and flex industrial. Recently in higher demand given the e-commerce shift, though they carry more environmental risk for lenders.
Office Buildings
Categorized as urban (high-rise) or suburban, and classified Class A, B, or C. Also categorized by tenancy — traditional office, co-working, creative office, flex space, or medical office.
Multifamily Buildings
The most common commercial property type. Only considered commercial when there are five or more units — 1-4 units for lending purposes is residential. Multiple units on adjacent, adjoining parcels can also qualify if the total is 5+ units.