Within commercial real estate world, Office building properties are considered to be one of the riskier assets simply due to current economic condition. There are more vacancies in office building properties because not that many businesses are expanding and more are closing down. Hence the office rental demands are low. Therefore securing office building financing has been challenging as lenders and capital providers are looking for more stabilized property with high net operating income. Here is a guide to get you started on the basics of what to expect.

Commercial Loan for Office Building – The Interest:

One option is the ‘fixed rate commercial loan’, wherein the interest rate and the payments remain constant over the entire repayment period. The second is the ‘adjustable rate commercial loan’, and herein the interest rate would fluctuate annually in accordance to the prevalent market rates. Alternatively, borrowers can also opt for abridge loan, and this is where short term loans are offered at considerably higher rates of interest.

The Down-Payment:

When you are looking for office building financing, it is important that you establish the options you have when it comes not just to the terms & conditions, but the down payment as well. This is because the market is awash with a number of competitive loan options for buildings. For a good building one can look forward to put down a down-payment of around 30% of the required sum (which could go down to 10% in case of an SBA loan) assuming the net operating income would be sufficient.

The Market Factors:

The functioning of any office building depends on the local market, the local economy, local development, the building’s location, etc. This makes it difficult for a borrower to get a commercial loan for office building in a soft market. For example; in case the chosen building has a number of empty spaces, financing can be difficult to come by. On the other hand, getting an office building loan for a fully occupied building or one with a good history of steady tenants should be significantly easier.

Private Financing:

Another option when it comes to the types of loans is private financing (including bridge loans and hard money loans), and when it comes to commercial office properties, private financing could also be used as means to acquire, develop, construct, reposition, etc. This type of financing is done with emphasis on speed and mostly suitable for investors looking at opportunistic, undervalued or other situations where the investor has short time to close the deal.

By: Shawn Shayestehfar

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