Tried to refi a strip mall with a local bank versus a CMBS lender last year

The local bank offered a 5.5% rate but wanted a 1.5 DSCR and a 20% holdback for tenant improvements. The CMBS loan came in at 6% but was non-recourse and had a 1.2 DSCR minimum. We went with the CMBS deal for a property in Tempe, and the flexibility on cash flow during a vacancy period saved us over $40,000 in the first eight months. Having that extra breathing room when a key tenant left was a total game changer. Has anyone else found that a slightly higher rate can be worth it for better loan terms?

2 comments

2 Comments

the_sandra11d ago

So you basically paid a 0.5% premium for an insurance policy against your anchor tenant bailing. Sounds like the insurance paid out. Banks love those holdbacks, it's like they get to keep your money just in case you might need it later. That CMBS flexibility is the whole point, even if they bury you in paperwork to get it. Saving forty grand while a space is empty isn't a small win, it's the reason you do the deal.

davis.diana10d ago

Exactly, that paperwork is the real cost. Reminds me of a friend who had a holdback for roof repairs on a small strip mall. The bank made them get three bids and write a whole report before releasing a dime, even though the work was done. They basically had to prove they hadn't just run off with the money, which was still sitting in the bank's account. Felt like being guilty until proven innocent.