Commercial mortgage conundrum - Posted by George

Posted by Patrick S. Lawson on September 22, 2005 at 09:19:52:


Commercial mortgage conundrum - Posted by George

Posted by George on September 22, 2005 at 01:31:52:

I don’t understand why most commercial mortgages are 10 year/25 to 30 year amortization. Real estate has done great over they years. These types of loans work well as long as the property is appreciating. But what if the property depreciates, which I believe is a good possibility with record low cap rates that we see today. Aren’t investors taking a huge gamble that they won’t be able to refinance or sell at an acceptable price once their balloon payment comes due? Personally my preference would be to take out a fully amortized loan, commercial or residential property, if possible. I think folks are taking a big risk hoping for a continuation of the big gains we’ve seen over the past couple decades. With cap rates at historically extremely low levels, I believe there is a high probability that prices are going down not up in the coming years. And these loans could do a lot of damage to a lot of investors. Just my opinion.

Re: Commercial mortgage conundrum - Posted by Don Dion

Posted by Don Dion on September 22, 2005 at 09:46:32:

You have to look at the big picture. You can only make so much money over time on one building. Offen with investors they see 5% to 8% increases in the rental fee’s each year. After 5 to 7 yrs of this they are ready to do a cashout refi to use the equity to get another building. And then in the next cycle there might be enough in equity between the two buildings to get two or even three more.
I see vary few commercial deals where the borrower wants to build up equity and pay the building off, like you do in residential.