Buying a commercial property for the value in the land, please review loan term sheet
Purchasing 0.3 acre/2000sqft commercial property. Rent is about 6k/mo, but the main play is to redevelop into 9k sqft/4 story office. This is in central Austin area, but outside the CBD.

I have quite a few residential properties, but this is only the second commercial property I have purchased. The loan is very out of sync with what I am accustomed to on the residential side (3% interest, 15% down).

Please review my loan and let me know your thoughts.

25% cash down, 0.75% origination fee, Prime plus 100 BPs (got them to lower by 50 already), 20 year amoritization that balloons in 5 years.

&amp;#x200B;

I also can use margin lending against my stock/bond portfolio at LIBOR+50BPs which is like 0.65%, but I would really prefer not to go that route due to margin call if another shock in the market happens like last March. I may use this vehicle for the 25% down as I have a few mil of available leverage to use.
[{"id": "gsyf52a", "text": "I would try to get 20% down / 20 year amortization or 25% down / 25 year amortization. 20%/20 year am may not be possible depending on the debt service coverage ratio.", "replies": [], "depth": 1}, {"id": "gsyk9zn", "text": "I can't imagine how you have enough parking on .3 acres for a 9k sq ft building. I would talk to a land use attorney about it. \n\nAs far as terms, I try to get 7 year fixed but much easier to get 5. prime + 100 bps is good. I try to get 80% LTV with a 25 yr am.", "replies": [{"id": "gsykjj1", "text": "In my city there are tons of bonuses for increasing sqft/parking ratio. Adding showers, keeping trees, car sharing program, street parking if you build a side walk etc.\n\nWorked with architect to do feasibility study and we came up with 16 parking spots and didn't even account for car sharing bonus which will increase that ratio bigly.", "replies": [{"id": "gsykrjv", "text": "Great. Sounds like you've done your DD. I see so many people on this sub talk about subdiving lots and adding stories and they don't know anything about land use approvals or the zoning. It's what I do for a living so it drives me crazy. Good luck on your project.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "gsylbvm", "text": "For a single tenant CRE property (assuming based on sq ft) you might get get to 80% depending on tenant quality &amp; lease length but I would try and get that origination down since you plan to redevelop which would necessitate a new loan.  That origination fee is fully earned at closing no matter if you hold it for 6 months or the full 5 year term.\n\nAlso, office is the 2nd most watched property type after hotels to see what happens post COVID for what it's worth.", "replies": [], "depth": 1}, {"id": "gsylg9t", "text": "What\u2019s the DSCR/DCR loan constraint? Or debt yield constraint? CRE loans typically have those requirements.", "replies": [{"id": "gt76qc0", "text": "Not always.  If he\u2019s getting it from a community bank they are hungry and doing stuff with zero structure/covenant package", "replies": [{"id": "gt7872v", "text": "Hence my usage of the word typically", "replies": [{"id": "gt7bceg", "text": "I would say if he\u2019s got some &lt;$1B asset bank quoting the deal, covenants would be characterized as \u2018atypical\u2019.  Based on the size of the deal, it may not even be a CRE shop.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "gsyvzqc", "text": "I wouldn\u2019t see 7 years if it doesn\u2019t match the tenant lease. Bancorp does no balloon if you want longer terms. I\u2019m in Dallas btw", "replies": [], "depth": 1}, {"id": "gsz8gct", "text": "I\u2019m a commercial lender in a much smaller area but those all seem to be reasonable/standard terms/fees for a commercial loan. You might be able to find somewhere that offers a slightly lower origination fee and a 20% DP but you\u2019re right around market numbers it seems. (At least for our market which, again, is much smaller then Austin for sure so take with a grain of salt)", "replies": [], "depth": 1}, {"id": "gsz98zg", "text": "You didn\u2019t talk about least term or credit worthiness or true \u201cmarket\u201d rent for that matter LTC and LTV is also relevant. That said, on the surface those terms don\u2019t look horrible. You might get better terms from a non-bank and I assume you\u2019re gonna look for an investor to develop it so unless you\u2019re gonna sit on it for a while, why not raise some LP money. Btw, given this is your first commercial deal, are you sure there is a market for new office? I\u2019d assume it will cost you ~$250/ft to build that on a tight site, elevator, fire, etc", "replies": [{"id": "gszb8mo", "text": "I\u2019ll be spending closer to 350/ft. If all else fails I own a small company which will lease a third of it and I\u2019ll change the rest into co working space. Yuge market for co working in my city due to tech/startup", "replies": [], "depth": 2}], "depth": 1}, {"id": "gt0v517", "text": "Been doing this 20+ years in roles as a CRE lender, broker, mortgage broker, asset manager. Maybe I missed others asking this but why office space? Post covid office is projected to struggle in general. Is Austin unique? Should I really build new office space with projections in the market is probably the better question...that is unless you've done a feasibility study. Brokers, architects and commercial lenders (not the underwriters) always want to make bonus/commission so what most of them say isn't taking YOUR best interest into consideration.", "replies": [], "depth": 1}, {"id": "gt1ffs5", "text": "Does your team sheet require a DCR, (Debt Coverage Ratio). You may not be able to develop if it is required to generate income. Construction loans have much higher interest", "replies": [], "depth": 1}, {"id": "gtc7wj0", "text": "Is this a construction loan only? By \u201cballoons in 5 years\u201d are you saying it converts to a perm with 20 year amort? Are there LTV covenants or DSCR requirements when it converts? For a construction loan the terms seem reasonable. I\u2019d be mostly concerned about a spec office play regardless of the market. Unless you can pre-lease anything. I\u2019m a developer/owner/manager in the Boston area and even on strong cash flowing multi tenant and mixed use office/flex/industrial assets we are lucky to see 65% LTV, 1.50 DSCR and rates in the low 4% range. All banks have put in floors on rates too. We still have one large flex/warehousing asset in southern NH fully floating loan currently at 2.11%! Free money basically.", "replies": [], "depth": 1}]