Commercial mortgage loans are utilized in many ways. Often, the loan is sought to enhance the return on equity, or cash-on-cash return. For example, if the property cap rate is 7%, and the interest rate is 5%, then positive financial leverage exists. Commercial mortgage loans can be used to finance apartment buildings, office buildings, retail shopping centers, industrial buildings, hotels, and raw land.
The commercial financing marketplace is made up of many different types of commercial mortgage lenders. The financing terms that these lenders offer are usually based on their cost of capital as well as yields available to the lender from other asset classes. A good understanding of the capital markets will help best meet the needs of both the lender and the borrower.
It can be helpful to work with a competent commercial mortgage broker. A skilled commercial mortgage broker stays abreast of the most favorable loan terms and understands the right type of lender that fits the financing request.
Commercial mortgage loans are sometimes used to raise cash from a commercial real estate property. For example, a shopping center owner may have an existing $10 million loan, and the shopping center has appreciated in value significantly so that the borrower can refinance for $15 million and utilize the $5 million of refinance proceeds for non-property related needs.