Commercial Real Estate Loans Refinancing Commercial Real Estate Commercial Mortgage 10 Year Fixed Rate 30 Year Amortization
A commercial mortgage is a mortgage loan secured by commercial property, such as an office building, shopping center, industrial warehouse, or apartment complex. The proceeds from a commercial mortgage are typically used to acquire, refinance, or redevelop commercial property.
Commercial mortgages are structured to meet the needs of the borrower and the lender. Key terms include the loan amount (sometimes referred to as "loan proceeds"), interest rate, term (sometimes referred to as the "maturity"), amortization schedule, and prepayment flexibility. Commercial mortgages are generally subject to extensive underwriting and due diligence prior to closing. The lender's underwriting process may include a financial review of the property and the property owner (or "sponsor"), as well as commissioning and review of various third-party reports, such as an appraisal.
There were $3.1 trillion of commercial and multifamily mortgages outstanding in the U.S. as of June 30, 2013. Of these mortgages, approximately 49% were held by banks, 18% were held by asset-backed trusts (issuers of CMBS), 12% were held by government-sponsored enterprises and Agency and GSE-backed mortgage pools, and 10% were held by life insurance companies.
Commercial mortgages can be structured as first liens or, if a greater loan amount is desired, the borrower may be able to obtain subordinate financing as well, sometimes structured as a mezzanine note or as preferred equity, which generally carries a higher interest rate.
Interest rates for commercial mortgages may be fixed-rate or floating rate. Fixed-rate mortgages on stabilized commercial real estate are generally priced based on a spread to swaps, with the swap spread matched to the term of the loan. Market interest rates as well as underwriting factors greatly affect the interest rate quoted on a particular piece of commercial real estate. Interest rates for commercial mortgages are usually higher than those for residential mortgages.
Many commercial mortgage lenders require an application fee or good-faith deposit, which is typically used by the lender to cover underwriting expenses such as an appraisal on the property. Commercial mortgages may also have origination or underwriting fees (paid at close as a reduction in loan proceeds) and/or exit fees (paid when the loan is repaid).
The term of a commercial mortgage is generally between five and ten years for stabilized commercial properties with established cash flows (sometimes called "permanent loans"), and between one and three years for properties in transition, for example, newly opened properties or properties undergoing renovation or repositioning (sometimes called "bridge loans"). Mortgages on multifamily properties that are provided by a government-sponsored enterprise or government agency may have terms of thirty years or more. Some commercial mortgages may allow extensions if certain conditions are met, which may include payment of an extension fee. Some commercial mortgages have an "anticipated repayment date," which means that if the loan is not repaid by the anticipated repayment date, the loan is not in default.
Commercial mortgages frequently amortize over the term of the loan, meaning the borrower pays both interest and principal over time, and the loan balance at the end of the term is less than the original loan amount. However, unlike residential mortgages, commercial mortgages generally do not fully amortize over the stated term, and therefore frequently end with a balloon payment of the remaining balance, which is often repaid by refinancing the property. Some commercial mortgages have an interest-only period at the beginning of the loan term during which time the borrower only pays interest.
Commercial loans vary in their prepayment terms, that is, whether or not a real estate investor is allowed to refinance the loan at will. Some portfolio lenders, such as banks and insurance companies, may allow prepayment flexibility. In contrast, for a borrower to prepay a conduit loan, the borrower will have to defease the bonds, by buying enough government bonds (treasuries) to provide the investors with the same amount of income as they would have had if the loan was still in place.
A commercial mortgage is typically taken on by a special purpose entity such as a corporation or an LLC created specifically to own just the subject property, rather than by an individual or a larger business. This allows the lender to foreclose on the property in the event of default even if the borrower has gone into bankruptcy, that is, the entity is "bankruptcy remote".
Commercial mortgages may be recourse or non-recourse. A recourse mortgage is supplemented by a general obligation of the borrower or a personal guarantee from the owner(s) of the property, which makes the debt payable in full even if foreclosure on the property does not satisfy the outstanding balance. A nonrecourse mortgage is secured only by the commercial property that serves as collateral. In an event of default, the creditor can foreclose on the property, but has no further claim against the borrower for any remaining deficiency.
If a sponsor is seeking financing on a portfolio of commercial real estate properties, rather than a single property, the sponsor may choose to take out a cross-collateralized loan, in which the all of the properties collateralize the loan.
Lenders may require borrowers to establish reserves to fund specific items at closing, such as anticipated tenant improvement and leasing commission (TI/LC) expense, needed repair and capital expenditure expense, and interest reserves.
Lenders usually require a minimum debt service coverage ratio which typically ranges from 1.1 to 1.4; the ratio is net cash flow (the income the property produces) over the debt service (mortgage payment). As an example if the owner of a shopping mall receives $300,000 per month from tenants, pays $50,000 per month in expenses, a lender will typically not give a loan that requires monthly payments above $227,273 (($300,000-$50,000)/1.1)), a 1.1 debt cover.
Lenders also look at loan to value (LTV). LTV is a mathematical calculation which expresses the amount of a mortgage as a percentage of the total appraised value. For instance, if a borrower wants $6,000,000 to purchase an office worth $10,000,000, the LTV ratio is $6,000,000/$10,000,000 or 60%. Commercial mortgage LTV's are typically between 55% and 70%, unlike residential mortgages which are typically 80% or above.
Lenders look at rents per square foot, cost per square foot and replacement cost per square foot. These metrics vary widely depending on the location and intended use of the property, but can be useful indications of the financial health of the real estate, as well as the likelihood of competitive new developments coming online.
Since the financial crisis, lenders have started to focus on a new metric, debt yield, to complement the debt service coverage ratio. Debt yield is defined as the net operating income (NOI) of a property divided by the amount of the mortgage.
Lenders typically do thorough extreme due diligence on a proposed commercial mortgage loan prior to funding the loan. Such due diligence often includes a site tour, a financial review, and due diligence on the property's sponsor and legal borrowing entity. Many lenders also commission and review third-party reports such as an appraisal, environmental report, engineering report, and background checks.
Providers of commercial mortgages
Banks, large and small, are traditional providers of commercial mortgages. According to the Federal Reserve, banks held $1.5 trillion of commercial mortgages on their books as of June 30, 2013.
Conduit lenders originate commercial mortgages and hold them as investments for a short period of time before securitizing the loans and selling CMBS secured by the underlying commercial mortgage loans. Conduit lenders include both banks and non-bank finance companies. Approximately $560 billion of commercial mortgages were held by issuers of CMBS as of June 30, 2013, according to the Federal Reserve.
Securitization of commercial mortgages in its current form began with the Resolution Trust Corporation's (or RTC's) commercial securitization program in 1992-1997. The RTC applied an approach similar to the one it had begun successfully using with residential mortgages, issuing multiple tranches of securities secured by diversified pools of commercial mortgage loans. Following the introduction of the securitization methods by the RTC, private banks began to originate loans specifically for the purpose of turning them into securities. These loans are typically structured to forbid prepayment beyond a specified amortization schedule. This makes the resultant securities more attractive to investors, because they know that the commercial mortgages will remain outstanding even if interest rates decline.
New CMBS issuance peaked in 2007 at $229 billion. Then, the subprime mortgage crisis and the resultant global financial crisis caused CMBS prices to fall dramatically, and new issuances of CMBS securities came to a virtual halt in 2008-2009. The market has begun to recover, with $12 billion in new issuance in 2010, $37 billion in new issuance in 2011, and $48 billion in new issuance in 2012.
Government-sponsored enterprises such as Fannie Mae and Freddie Mac, as well as government corporations such as Ginnie Mae, are active lenders for multifamily commercial real estate (that is, apartment buildings) in the United States. Approximately $390 billion of multifamily residential mortgages were held by government-sponsored enterprises or Agency and GSE-backed mortgage pools as of June 30, 2013, representing 12% of total commercial mortgages outstanding and 43% of multifamily commercial mortgages outstanding at that time.
Insurance companies are active investors in commercial mortgages, and hold approximately $325 billion of commercial mortgages as of June 30, 2013.
Mortgage brokers do not provide commercial mortgage loans, but are often used to obtain multiple quotes from different potential lenders and to manage the financing process.
Correspondent Lenders do not loan their own money, but provide front end services such as origination, underwriting, and loan servicing for lenders that utilize these types of companies. The correspondent often represents lenders in a particular geographic area.
Mission Viejo / / is a city in Orange County, California, United States in the Saddleback Valley. Mission Viejo is considered one of the largest master-planned communities ever built under a single project in the United States, and is rivaled only by Highlands Ranch, Colorado, in its size. Its population as of 2014 was estimated at 96,346.
Mission Viejo is suburban in nature and culture. The city is mainly residential, although there are a number of offices and businesses within its city limits. The city is known for its picturesque tree-lined neighborhoods, receiving recognition from the National Arbor Day Foundation. The city's name is a reference to Rancho Mission Viejo, a large Spanish land grant from which the community was founded.
Mission Viejo was purchased by John Forster, a Mexican also known as "Don Juan". During the Mexican-American War, Forster provided fresh horses to United States military forces which were used on the march of San Diego to retake Los Angeles.
Mission Viejo was a hilly region primarily used as cattle and sheep grazing land, since it was of little use to farmers. This city was one of the last regions of Orange County to be urbanized due to its geologic complexity. In 1960, early developers dismissed most of the land in Mission Viejo as simply "undevelopable".
Donald Bren, an urban planner who later became the president of the Irvine Company, drafted a master plan which placed roads in the valleys and houses on the hills, and contoured to the geography of the area. The plan worked, and by 1980 much of the city of Mission Viejo was completed. During the late 1970s and the 1980s, houses in Mission Viejo were in such high demand that housing tracts often sold out before construction even began on them. The houses and shopping centers in the city are almost uniformly designed in a Spanish mission style, with "adobe"-like stucco walls and barrel-tile roofs. Many point to Mission Viejo as the first and largest manifestation of Bren's obsession with Spanish architecture. Bren's company was also the creator of the developments in Irvine, and Newport Beach. The company expanded its operations and went on to build the Lakes project in Tempe, Arizona, Mission Viejo Aurora in Colorado and was the initial master planner of Highlands Ranch, both in the Denver Metropolitan area.
The seal of the city of Mission Viejo was designed and drawn by Carl Glassford, an artist and former resident of the city.
Mission Viejo is located at(33.612739, -117.656038).
According to the United States Census Bureau, the city has a total area of 18.1 square miles (47 km2). 17.7 square miles (46 km2) of it is land and 0.4 square miles (1.0 km2) of it (2.12%) is water. A significant portion of the surface water is held in Lake Mission Viejo, an artificial lake stretching approximately one mile from Olympiad Road to Alicia Parkway along Marguerite Parkway.
It is bordered by Lake Forest on the northwest, Trabuco Canyon on the northeast, Rancho Santa Margarita and Ladera Ranch on the east, San Juan Capistrano on the south, and Laguna Niguel and Laguna Hills on the west.
Mission Viejo enjoys a borderline semi-arid/Mediterranean climate (Köppen climate classification BSh/Csa), with mild temperatures and plentiful sunshine year-round. Rainfall totals, which average around 14 inches (355 millimetres) annually are focused primarily in the months from November to March. Summer is very dry and virtually rainless, however thunderstorms do rarely occur. Due to the city's proximity to the ocean, nighttime and morning clouds are fairly common, especially in the months of May and June, a weather phenomenon commonly known as June Gloom or May Gray.
Like most of Southern California, the city is prone to dry Santa Ana winds, which bring hot air from inland and punctuate the normally mild temperatures with noticeable jumps. For example, temperatures have reached highs of 90 °F (32 °C) and above throughout many months of the year, occasionally into the autumn months. Snowfall within city limits is very rare, however the nearby Saddleback Mountains receive a dusting of snow every few winters. Since 2012, California is experiencing the worst drought in a century.
The 2010 United States Census reported that Mission Viejo had a population of 93,305. The population density was 5,148.3 people per square mile (1,987.8/km²). The racial makeup of Mission Viejo was 74,493 (79.8%) White (68.9% Non-Hispanic White), 1,210 (1.3%) African American, 379 (0.4%) Native American, 8,462 (9.1%) Asian, 153 (0.2%) Pacific Islander, 4,332 (4.6%) from other races, and 4,276 (4.6%) from two or more races. Hispanic or Latino of any race were 15,877 persons (17.0%).
The Census reported that 92,363 people (99.0% of the population) lived in households, 859 (0.9%) lived in non-institutionalized group quarters, and 83 (0.1%) were institutionalized.
There were 33,208 households, out of which 11,767 (35.4%) had children under the age of 18 living in them, 20,792 (62.6%) were opposite-sex married couples living together, 2,967 (8.9%) had a female householder with no husband present, 1,306 (3.9%) had a male householder with no wife present. There were 1,211 (3.6%) unmarried opposite-sex partnerships, and 225 (0.7%) same-sex married couples or partnerships. 6,314 households (19.0%) were made up of individuals and 2,949 (8.9%) had someone living alone who was 65 years of age or older. The average household size was 2.78. There were 25,065 families (75.5% of all households); the average family size was 3.18.
The population was spread out with 21,270 people (22.8%) under the age of 18, 7,852 people (8.4%) aged 18 to 24, 21,648 people (23.2%) aged 25 to 44, 29,003 people (31.1%) aged 45 to 64, and 13,532 people (14.5%) who were 65 years of age or older. The median age was 42.2 years. For every 100 females there were 95.4 males. For every 100 females age 18 and over, there were 92.2 males.
There were 34,228 housing units at an average density of 1,888.6 per square mile (729.2/km²), of which 25,859 (77.9%) were owner-occupied, and 7,349 (22.1%) were occupied by renters. The homeowner vacancy rate was 0.9%; the rental vacancy rate was 4.9%. 72,390 people (77.6% of the population) lived in owner-occupied housing units and 19,973 people (21.4%) lived in rental housing units.
According to the 2010 United States Census, Mission Viejo had a median household income of $96,088, with 5.3% of the population living below the federal poverty line.
The Mission Viejo-Lake Forest-San Clemente urban area (which also includes the cities of Aliso Viejo, Dana Point, Laguna Beach, Laguna Hills, Laguna Niguel, Laguna Woods, Rancho Santa Margarita and San Juan Capistrano) had a population of 583,681 at the 2010 Census.
At the 2000 census, there were 93,102 people, 32,449 households and 25,212 families residing in the city. The population density was 4,990.1 inhabitants per square mile (1,926.4/km²). There were 32,986 housing units at an average density of 1,767.9 per square mile (682.5/km²). The racial makeup of the city was 79.7% white, 1.6% African American, 0.4% Native American, 8.3% Asian, 0.1% Pacific Islander, 6.2% from other races, and 3.7% from two or more races. Hispanic or Latino of any race were 15.9% of the population. There were 32,449 households out of which 39.7% had children under the age of 18 living with them, 66.1% were married couples living together, 8.1% had a female householder with no husband present, and 22.3% were non-families. 17.3% of all households were made up of individuals and 6.0% had someone living alone who was 65 years of age or older. The average household size was 2.84 and the average family size was 3.22.
Age distribution was 27.1% under the age of 18, 6.6% from 18 to 24, 30.5% from 25 to 44, 24.9% from 45 to 64, and 10.9% who were 65 years of age or older. The median age was 38 years. For every 100 females there were 95.7 males. For every 100 females age 18 and over, there were 91.7 males.
According to a 2008 estimate, the median household income was $93,330, and the median family income was $113,439. Males had a median income of $74,703 versus $53,196 for females. The per capita income for the city was $41,459. 1.9% of families and 4.4% of the population were below the poverty line, including 5.1% of those under age 18 and 6% of those age 65 or over.
Recreation and services
Mission Hospital is the largest hospital in south Orange County and serves as the area's regional trauma center. It also offers one of two Children's Hospital of Orange County locations providing care for children.
Mission Viejo has numerous recreational areas such as the Norman P. Murray Community and Senior Center there are about two parks per square mile. The city has three golf courses, The Mission Viejo Country Club, Casta del Sol Golf Course, and the Arroyo Trabuco Golf Club. At the center of the city is a man-made lake, Lake Mission Viejo, a private association for Mission Viejo residents with custom waterfront homes, condominiums, boat and paddle board rentals, fishing, and swim beaches. Lake Mission Viejo also holds events such as music concerts and movie screenings, usually complimentary for members and typically during the summer season.
The Shops at Mission Viejo and the Kaleidescope Courtyards serve as the city's two main shopping, dining and entertainment centers. Both cater to an upper middle class customer demographic and feature family-oriented facilities and services.
Mission Viejo also hosts a number of athletic events such as 5K runs and triathlons throughout the year. The city holds a variety of annually recurring events to celebrate holidays including a street fair and fireworks for Independence Day and public decorations and interactive activities for children during the winter holiday season featuring representation for multiple popular religions.
According to the City's 2010 Comprehensive Annual Financial Report, the top employers in the city were:
Marie Callender's has its corporate headquarters in the Marie Callender's Corporate Support Center in Mission Viejo.
Of the 56,286 registered voters in the city, 31,090 (55.2%) are Republicans, 14,319 (25.4%) are Democrats, 8,790 (15.6%) declined to state political affiliation, and the remaining 2,087 (3.8%) are registered with a minor party.
Mission Viejo is a general law city, which operates under a council-manager form of government. The Mission Viejo City Council consists of five members elected at-large to staggered four-year terms. Each year, the City Council elects a Mayor and a Mayor Pro Tem amongst themselves to serve for one calendar year. The Mayor, who has equal legislative power with fellow members of the City Council, serves as the ceremonial leader of the city and as the presiding officer of the bi-weekly City Council meetings. The current City Council, as of January 1, 2016, consists of:
In county government, Mission Viejo is located in the 5th District of the Orange County Board of Supervisors, currently represented by Lisa Bartlett.
Federally, most of Mission Viejo is located in California's 45th congressional district, which has a Cook PVI of R +8 and is represented by Republican Mimi Walters. A small area in the city's southern tip, which includes Saddleback College, is located in California's 49th congressional district, which has a Cook PVI of R +5 and is represented by Republican Darrell Issa.
Mission Viejo has a major youth athletic facility, Mission Viejo Youth Athletic Park. The park consists of eight baseball fields and five soccer fields. It is host to Little League District 68, AYSO Region 84, and four competitive soccer clubs: Pateadores Soccer Club, Mission Viejo Soccer Club, West Coast Futbol Club, and Saddleback United Soccer Club.
The Mission Viejo Nadadores Swimming and Mission Viejo Nadadores Diving Team won a string of national championships and produced a number of Olympians and world record holders in the 1970s and 1980s. Olympians included Shirley Babashoff, Brian Goodell, Larson Jenson, Maryanne Graham, Nicole Kramer, Casy Converse, Marcia Morey, Dara Torres, and Greg Louganis.
There is also a soccer facility, now used by the town's youth soccer program, that was used as a training field by the United States men's national soccer team before and during the 1994 FIFA World Cup, hosted by the United States. Mission Viejo is the largest AYSO Region in the country.
The Saddleback College ballpark hosted the Mission Viejo Vigilantes minor league baseball team of the Western Baseball League from 1996–2001. Now the ballpark has a semi-pro collegiate team, the Orange County Fire.
Mission Viejo is also the hometown of NFL quarterback Mark Sanchez, Minnesota Twins pitcher Phil Hughes, and Chicago White Sox first baseman Adam LaRoche, former Milwaukee Brewers pitcher Don August, Boston Red Sox outfielder Allen Craig, Top Shot Season 4 Champion Chris Cheng, and PBA Tour Champion Scott Norton.
Mission Viejo is served by two school districts, the Capistrano Unified School District and Saddleback Valley Unified School District. Capistrano Unified serves the eastern, northeastern, and southern portions of the city with eight schools. As of 2006, all high school students in the Capistrano Unified portion of Mission Viejo attend Capistrano Valley High School. Students from western Mission Viejo (north of Oso Parkway and west of Marguerite until Alicia Parkway) attend Saddleback Valley's Mission Viejo High School. Far northern Mission Viejo attends Saddleback Valley's Trabuco Hills High School, though most of that school has students from Rancho Santa Margarita and Lake Forest. A few residents attend Tesoro High School in Las Flores or the private Santa Margarita Catholic High School in Rancho Santa Margarita.
Silverado High School, Mira Monte High School, and Pathfinder are continuation and adult schools within the city. Silverado High School provides a day school environment while Mira Monte, which shares the same campus, is strictly independent study.
Saddleback College, near The Shops at Mission Viejo and Capistrano Valley High School, is a large community college in the southern half of the city. In addition, the University of California, Irvine, Chapman University, Soka University of America, and California State University, Fullerton (Irvine Campus), are nearby in adjacent cities.
La Tierra Elementary shut down in June 2009 due to budget cuts. It was chosen due to its small size and minimal student body. The school will remain closed until further notice. Mission Viejo residents refer to La Tierra as "The Little School with a Big Heart". Students there are reassigned to Del Cerro Elementary.
O'Neill Elementary, the city's first elementary school, closed in June 2009 also due to budget cuts in SVUSD. Students in the Deane Home community surrounding the school will be moved to nearby De Portola Elementary. Students living in the homes north of the lake will be moved to Melinda Heights Elementary in Rancho Santa Margarita.
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