Commercial Financing at Par

It is expensive for a commercial mortgage lender to underwrite a commercial real estate loan.  That's why the overwhelming number of commercial lenders charge at least one point.  The typical hard money lender charges between three to six points for a commercial loan.

Some lenders, however, make loans at par.  Par means the lender charges zero points.

Ten years ago the only type of lender that made loans at par was a life insurance company.  Today more and more commercial lenders are making loans at par so that their mortgage brokers can add one point and still be competitive.  For example, many Wall Street investment bankers will buy loans from their CMBS conduits at par.  A CMBS conduit is a mortgage banker that books CMBS loans destined for sale to investment banks and banks.

But there is a problem.  There is no free lunch.  Those lenders making loans at par almost always charge a prepayment penalty.  And prepayment penalties on commercial loans today are typically very expensive.  I have seen prepayment penalties as large as $1 million on a $10 million commercial loan!

Blackburne & Brown, the hard money commercial lender, is now making zero point hard money loans in California with no prepayment penalty.  For details, please call Mike Thurman at (916) 338-3232 or email him at thurman@blackburne.com.