Commercial Property Cash Out Refinance - Question - Thank you
 We are looking at a medical building with a purchase price of $9,000,000 and a 10 year loan term. After 10 years with the NOI increases and the anticipation of renewing the lease (they have two 5 year options), we believe the value of the building would be around $10,700,000. If we refinance at a 65% LTV, our new loan would be $6,955,000. The balance of the original loan at that time would be $4,569,539. In a cash out refinance would we literally get the difference of the loans ($6,955,000-$4,569,539=$2,385,461) from the lender sent to us? Thanks for the help.
[{"id": "i08p44q", "text": "Yes. Closing attorney/title company will pay off existing note and you will be given a check or wire at closing and will reflect on HUD", "replies": [], "depth": 1}, {"id": "i08p5w4", "text": "Yes.", "replies": [], "depth": 1}, {"id": "i08pxz4", "text": "In theory, yes. A bit nuanced as you're saying to refi at the end of the original loan term. Therefore you would renegotiate a whole new loan with a new lender (or even existing). If you want to refinance during the loan term, you may incur prepayment penalty and the lender may ask that the capital is not distributed (i.e. stays in the SPV structure). You may keep that capital in the structure to pay for capex if needed. That's up to you to negotiate with the lender. More flexibility the better as shit can go tits up. \n\nMake sure you have no prepayment penalty so you can refi earlier if property value goes up.", "replies": [{"id": "i08qchg", "text": "Thank you. Definitely understand it's a bit more nuanced than this but trying to keep it simple. In the right environment, this is great way to add returns on your investment if you are a long-term player, correct?", "replies": [{"id": "i08r9ag", "text": "Yes. Again, since you're a long-term holder, build yourself sufficient flexibility within the capital structure so that you'll always have control of the asset. Invest and maintain to a sufficient standard that it does not lose relevancy in the market. Can also help keep your tenants happy.\n\nStart thinking now about what's the plan in 5 or 10 years. Tenant leaves in 5y, do you have enough capital for a major refurb? Could you sell vacant? Is the land worth anything? Etc.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "i08yqyd", "text": "Yes, after all associated closing costs and lender fees- probably want to subtract another few hundred thousand. Also, should look at the downside scenario in case the tenants choose not to renew. Normally for MOB we assign a ~70-75% renewal rate for tenants due to their existing buildout. \n\nSuggest not doing CMBS loans. At 65% there are better options.", "replies": [], "depth": 1}, {"id": "i0934i5", "text": "Conceptually\u2026\u2026Yes.", "replies": [], "depth": 1}, {"id": "i0a0bq8", "text": "Yes, the new loan will payoff the old loan, cover closing costs and the rest is cash out. There may be some additional reserves that get taken from the net proceeds - it\u2019s 10 years from now so who knows what lenders will require then. \n\nSeparate note - an 18% increase in value over 10 years seems terrible.", "replies": [], "depth": 1}, {"id": "i0aoo5h", "text": "What does that work out to, less than 2% appreciation per year? Hard pass.\n\nAlso, in my mind, depending on the renewal option language the property will have less value at the end of the initial 10 than a lease without the option. Renewal options are always to the tenant\u2019s benefit, never the landlord\u2019s.", "replies": [], "depth": 1}]