A commercial refinance runs in a fixed order and most of the ones that fail do so because somebody took the steps out of order. The pattern is always the same: establish what leaving costs, establish what the property earns, then find out what the market will lend against it.
First, the payoff and what it costs to leave
Ask the existing lender for a written payoff figure including any prepayment penalty, step-down, yield maintenance or defeasance. On securitised debt, defeasance is a substitution of Treasury securities for your property as collateral, and it is expensive and slow. There is no point comparing rates until you know this number, because it can be large enough to reverse the answer.
Second, the operating statement
Trailing twelve months of income and expenses, a current rent roll, and a realistic vacancy and management assumption, because the lender will impose one whatever your statement says. That produces the net operating income, and the net operating income divided by the proposed debt service is the coverage ratio the whole file turns on. Commercial Loan Direct names it the first of the four pillars lenders focus on.
Third, the market, and the costs of finding out
Then, and only then, approach lenders. Expect a commercial appraisal, a Phase I environmental report, a survey, title work and lender legal fees, mostly ordered by the lender and payable whether or not the loan closes. The median published maximum in this record is 75% loan-to-value, and only three of the eight firms publishing a figure are describing their own credit box rather than the market.
Questions people ask about refinance commercial property loan
How long does a commercial refinance take?
Typically weeks rather than days once an application is in, and the appraisal and environmental report are usually the long poles. Establishing the payoff first can save all of it.
What does it cost to refinance?
Appraisal, Phase I environmental, survey, title, lender legal and origination points, plus whatever the existing loan charges to leave. Most are payable whether or not the loan closes.
What is defeasance?
Substituting Treasury securities for your property as collateral on securitised debt, so the bondholders keep their payments. It is the most expensive way to leave a loan early.