Large Cities Lose Population During Covid-19

The coronavirus pandemic has caused population movement out of large, urban markets.  Many large cities such as San Francisco, Los Angeles, Chicago, and New York have seen many people moving out over the last several years due to the high expense of housing and high urban density.  This trend was exacerbated this past year during the health crisis as people looked to get away from densely populated areas in favor of more suburban and rural locations.  The ability to work from home and attend school online has given people a lot of flexibility to relocate.  Although some of this flexibility is short-lived and might change as we recover from the pandemic, many companies are making the decision to allow workers to continue to work remotely.  For these workers, the desire to return to expensive urban areas might be less appealing.  Suburban and rural markets tend to be less expensive and more attractive, especially by those workers whose income was negatively affected by the pandemic.  Companies are also benefitting from a work from home policy as this lowers their costs for expensive office space in downtown urban locations. 

The migration away from some of these large cities has favored smaller markets in the South and Sunbelt markets.  Cities like Phoenix, Austin, and Dallas are some of the fastest growing markets in the country.  Labor markets in these cities have strongly outperformed the more expensive coastal cities on the East and West coasts during the pandemic.  Many markets in the South are luring business activity with a lower cost of living, business friendly conditions, quality leisure facilities, and high quality of life.  We expect to see companies expanding their employment base in these markets and a continued migration of people into these markets to take advantage of lower cost housing and good job opportunities.  This is especially true for younger workers who have traditionally been shut out of homeownership in more expensive markets on the East and West coasts.  We are seeing increased apartment activity in many of these markets and expect this trend to continue in the future.

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Freddie Mac Apartment Lending During Covid-19

Select Commercial participates in the Freddie Mac Small Balance Lending (SBL) program for multifamily properties.  The Freddie Mac program offers great low fixed rates for long term permanent financing on a nationwide basis.  Freddie Mac SBL loans are also non-recourse (no personal guarantee from the borrower).  Due to Covid-19, Freddie Mac has made several changes to their lending guidelines which affect loan approvals.  Some of the major changes are as follows:

  • Most loans today require that a reserve account be setup and money escrowed from closing to cover 12 months of principal and interest.  This reserve account will typically be held for 12 months and used to cover mortgage payments in the event that the building owner is unable to make payments due to an inability to collect rental payments from tenants.  With many tenants out of work and not earning an income, many landlords are experiencing cash shortfalls and difficulty paying back their loans.  The reserve account will be released after the government lifts Covid-19 restrictions.
  • Refinance loans with cash out are subject to restrictions in loan to value ratio and debt service requirement ratios.  Loans that were typically approved at 80% LTV are now being quoted at 75%.  Loans that were typically approved with a 1.25x DSCR are now being quoted at 1.30X.  These steps effectively serve to limit the amount of cash out on a loan refinance.
  • Many apartment properties contain commercial space on the ground floor.  Unless the commercial tenant is an essential service (grocery store, pharmacy, etc.) the commercial space is being underwritten as if it is vacant (the income will not count).  This affects the overall net operating income of the property and effectively limits loan size on these properties.

In addition to these changes imposed by Freddie Mac, many state and local governments are limiting the ability of landlords to evict tenants for non-payment of rent.  This has caused many properties to suffer economic vacancies and losses.  These eviction restrictions are causing a drop in value of the property and difficulty obtaining maximum loan amounts.  We are watching the market closely for new developments as the pandemic continues.

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Covid-19 and the Commercial Real Estate Market

The Covid-19 pandemic has created havoc on Americans’ health and the health of their businesses. April 1st marked a major due date for rent payments for millions of businesses large and small, and reports from around the country indicate that many were facing great difficulty.

The President and state governors have been reporting daily on total Coronavirus cases and the current death toll, but there is no daily count of lost businesses. However, reports of unpaid April rent have greatly increased around the country, along with accounts of how landlords and tenants are trying to cope with the sudden collapse of a large portion of the American economy.

Most of all, they tell the story of the commercial real estate industry in turmoil, with businesses large and small feeling the pinch that some say could wreck the economy like the Great Recession of 2008. With many businesses shuttered, and homeowners out of work, landlords are having difficulty collecting rents and paying their mortgages and taxes.

Reports indicate that big-name companies like the Cheesecake Factory (NASDAQ: CAKE), Subway, and Mattress Firm (NASDAQ: MFRM) did not pay their April rent, affecting thousands of retail locations across the country.  The Staples office supplies chain is also among that number, although reports indicate that many of its stores remain open in a number of locations because it’s considered an essential business immune to virus-driven shutdown orders.

There are several government and private business efforts starting up to help suddenly cash-starved businesses survive the pandemic, most notably the Paycheck Protection Program now available through the U.S. Small Business Administration.

That money, in the form of loans that many expect to turn into grants, is only beginning to be distributed, and 75% of each forgivable loan must go to payroll. That leaves only 25% at most to go to rent.  While helpful, this program will only provide a short-term solution to businesses and landlords.  Depending on the length and severity of shutdown, Congress will probably need to more to ensure the survival of small businesses and the economy in general.

The American commercial real estate market, like the economy it helps support, is a complicated mix of financial and business relationships that is now being tested like we have never seen before. Some businesses will fail, and others will find a way to survive. We will be watching the market very closely in the weeks and months ahead.  Please visit our website at for current information.

How to Invest in an Apartment Building

Stephen A. Sobin

As a commercial mortgage broker with almost 35 years of lending experience, I am often approached by first time investors who are looking to buy an apartment building as an investment.  These new investors want to understand the steps involved in locating and purchasing their first building.  The following guide should be followed:

Check Your Credit – go online to one of the free credit reporting sites on the internet and run your credit report and credit scores.  Lenders expect to see borrowers with a good credit rating.  If any negative items appear on your credit, make every effort to clear up these items in advance.  If you have experienced past problems, be ready to explain these problems in a well written letter of explanation.

Locate an Experienced and Competent Real Estate Agent – make sure you find a real estate agent that specializes in apartment buildings.  Most agents that sell homes for a living have no experience selling apartment properties.  As a first timer, you need an agent that can help you through the details, as a commercial investment is much different than buying a home.  The agent should understand which neighborhoods are on the rise and which neighborhoods to avoid.

Get Full Disclosure – it is crucial that you obtain complete financial records on the property.  Do not rely on verbal statements.  You need to verify all income by looking at the leases and all expenses by looking at actual bills.  Most sellers overstate the income and understate the expenses.  Do your homework carefully.

Visit the Property – do not consider making an offer until you inspect the interior and exterior of the property carefully.  Is the property in good repair?  Is there any deferred maintenance?  Are the units actually occupied or is there apparent vacancy?  Is the neighborhood relatively safe and free of crime?  Are there other buildings in the nearby area that are in disrepair or suffering from high vacancy?

Make a Legitimate Offer – don’t be fooled by a high asking price.  Calculate the gross income and subtract expenses to come up with a net operating income.  The NOI needs to be adequate to cover a proposed mortgage, as well as, return a profit to the owner.  If the numbers don’t work, keep shopping.

Engage an Experienced Commercial Mortgage Broker – a commercial mortgage broker specializes in financing investment properties and will understand all of the nuances of a commercial mortgage loan.  It is crucial that you find a broker who is competent and experienced.  As a first-time buyer, the advice you receive will be invaluable.  A good broker will make sure you offer a fair price and do not overpay.  He will understand the market and negotiate the best terms available for your particular needs.

Be Prepared to Move On – many investment opportunities are not fairly priced.  Do not make the mistake of falling in love with a property.  This is an investment and you need to remember that the goal is to make a profit.  If the property does not make sense, move on and keep shopping.  Your commercial mortgage broker will assist you in this regard.

What to watch out for when considering a commercial property investment and what the “hot buttons” are for commercial mortgage lenders

I constantly receive phone calls and emails from borrowers who ask me what to watch out for when considering a commercial property investment and what the “hot buttons” are for commercial mortgage lenders.  Here are some thoughts:


These days, lenders look very closely at the borrower’s qualifications before extending credit.  The borrower should have good credit, with FICO scores of 680 and higher.  Lower credit scores may be acceptable with solid, written explanations.  If your credit contains any foreclosures, bankruptcies, judgements or short sales, be prepared to offer full disclosure upfront and have proof that everything has been settled.  Next, lenders will look at the borrower’s total net worth and liquidity.  They will expect to see a financial statement with net worth equal to the loan amount and at least six months of cash reserves to cover debt service.  If a borrower expects a commercial mortgage loan of $1,000,000 or more, they have to show the lender that they have the financial statement to back up the loan.  Equally important to the lender is experience.  Do you have experience owning and/or managing similar properties?  If not, are you willing to hire a professional management company to manage the property for you?  Lenders need to secure their investment and will not lend to a borrower that does not have a proven track record.  Last, a lender will look at the size of your down payment.  Gone are the days when banks and other lenders will offer 100% financing or other very low down payment loans.  Lenders will expect to see a owner that is vested in the project.


Next, a lender will look at the property.  They will expect to see a well run property in good condition.  They will look at the demographics of the neighborhood and local crime statistics.  Properties that are run down, poorly managed, or in very rural areas will be highly scrutinized.  These properties might require a short term bridge loan or private money loan until they will qualify for regular bank financing.  Another very important factor to consider is the past and current use of the property.  Properties that are, or could be, environmentally hazardous will require extensive environmental testing.  Properties like gas stations, dry cleaners, and industrial properties with onsite chemicals will be very hard to finance.  These days, retail properties with marijuana based tenants will almost certainly cause problems for a lender.  It is very important for a lender to review the tenant base and the types of businesses located at the property upfront.

Financial Numbers

After a lender is comfortable with the borrower and the property type, they will then delve into the numbers.  First, they will look at the rent roll to make sure that the vacancy and rental rates are acceptable.  They will look at how long the tenants have been in occupancy and how long the leases are.  Properties with constant turnover and poor leases will cause problems for a lender.  Next, a lender will look at 2-3 years of operating statements and look at the income, expenses, and net cash flow.  They will expect to see properties that have a proven ability to generate rental income, reasonable expense ratios, and net income that is sufficient to cover the mortgage payments.  They will calculate loan-to-value ratios, debt service coverage ratios, and debt yields.  Lenders have internal guidelines for all of these calculations that must be met.

Banks and other lenders got into lots of trouble during the last recession by making credit decisions too freely and without proper oversight.  Lenders today are required to be more careful so as to avoid the problems they encountered in the past.  At Select Commercial, we are well versed in preparing loan packages that make sense and address lenders’ concerns.  Let us know if we can help you!

Select Commercial Specializes in Small Balance Apartment Loans

Select Commercial Funding LLC is an apartment lending specialist in the origination of small balance apartment loans from $1,000,000 to $5,000,000.  We proudly originate loans nationwide and offer extremely competitive rates and terms.  Some of the features and benefits of our program include:

Lending Areas

Many lenders only wish to lend in large, urban areas within well populated cities.  Our program covers the entire country.  We lend in large markets, small markets, and even rural areas.  Most national lenders do not feel comfortable going into smaller markets with lower population densities.  We are well equipped to handle these requests.

Loan Terms

Most local banks prefer to lend short term, usually offering rates fixed for only 5 years at a time.  We offer fixed rates for five, seven and ten year terms.  In addition, we will amortize our loans for up to 30 years and often offer interest-only periods as well.  Local banks often amortize their loans for a maximum of 20 or 25 years which increases the monthly payments and negatively affects the property’s cash flow.  It is also very rare for a local bank to offer an interest-only loan.  Another huge benefit of our program is that we offer a hybrid/adjustable option.  After the initial five, seven, or ten year fixed rate period, we can convert the loan into an adjustable.  This option eliminates the balloon payment due at the end of the initial fixed rate period.

Loan-to-Value Ratio

Whereas most local banks will limit their LTV ratio to 70% or 75% maximum, we will consider requests up to 80% LTV.  On a purchase transaction, a lower down payment means a larger purchase and less cash tied up in the process.

Personal Guarantees

Almost all local banks require that the borrower sign a personal guarantee.  A huge benefit of our program is that we offer Non-Recourse financing (subject to standard carve-outs).  This allows companies, entities, investor groups and multiple parties to purchase a property without having to have every member sign personally.

Pre-Payment Penalties

Whereas many national lenders charge yield maintenance penalties which create huge penalties in the event of a sale or refinance, we offer easy stepdown penalties.  These penalties greatly reduce the cost if you decide to sell or refinance the property at a later date.  And, our loans are assumable.  If you do decide to sell, a qualified buyer can assume your loan at very attractive terms.

Documentation Requests

Another huge benefit of our program is that we do NOT require personal or corporate tax returns.  We will underwrite your loan using a rent roll and historical operating statements.  Our underwriting is common sense and fast.  We close most of our loans within 30-45 days from formal application.


Rate Locks

We do not charge an additional fee to lock your rate.  We automatically lock your rate for 35 business days from signup at no additional cost.  This gives us plenty of time to close your loan and offers you the protection against rate increases from signup to closing.

Low Third Party Costs

Other lenders collect very high upfront fees for third party costs, including: appraisal, environmental, engineering, credit, processing, legal, etc.  We offer a capped cost option.  We collect one smaller amount (as low as $5,000 total) and cover ALL third-party costs with that deposit.  This alone can save you thousands of dollars of processing and closing costs.

It is very simple to begin our process.  We will discuss your transaction with you upfront to determine if you and your property will qualify.  If you would like to discuss a potential transaction with us, please call our office at 516-596-8537.  You may visit our website at for more details.

What Makes Us Different?

We often have people ask us why they should apply to Select Commercial rather than just going to their local bank for a commercial mortgage loan. Banks typically have one set of guidelines, and if your loan does not meet their guidelines they will probably not be able to accommodate your request. At Select Commercial, we have numerous loan programs to choose from and attempt to custom tailor a commercial mortgage loan that meets your individual needs. Many, if not most, of our successful loan approvals required us to overcome an obstacle that other lenders were not willing to do.

I would like to review a few of these situations that have recently been approved:

  • Our borrower owns an apartment property in Lowell Massachusetts. He was looking to refinance a high rate loan and obtain cash for property improvements. The property was older and needed renovation. The current property condition made the borrower’s bank nervous. We approved this loan at a rate that was lower than the bank. We also offered a long term fixed-rate loan and a long-term amortization. The term was also longer than the bank was offering.
  • An owner of a mixed-use property in Chicago Illinois approached us about refinancing his property. The owner had credit and income problems which his bank could not overcome. The borrower was also looking to minimize his monthly payment and was requesting an interest only loan. We were able to accommodate this borrower at a very attractive rate.
  • A co-op Corporation in New York City was looking to refinance the underlying loan on the cooperative building. Their current loan did not mature for six months and they did not want to pay a prepayment penalty. They were concerned that rates would rise if they waited for six months. We approved their loan and gave them an extended rate lock for six months. In addition, our rates and closing costs were lower than they could obtain on their own.
  • A borrower in Cleburne Texas owns a small un-flagged motel. They needed to pay off the seller who had taken back a mortgage upon purchase. Most lenders do not like loans in small towns and do not lend on motels that are not part of a major chain. We were able to prove this loan without a problem.
  • Another client of ours owns a student housing property in Gainesville Florida. They needed to refinance a very high rate loan and obtain cash to buy out partner. The former partner mismanaged the property resulting in lower than necessary income needed to qualify. We were able to look at pro forma income and approve a loan based on projections.

Most commercial mortgage transactions require that a lender be willing to listen to the story and try to find a way to overlook the negatives associated with the deal. Good lenders will look for a reason to approve a loan, instead of saying “NO”. At Select Commercial, we are constantly looking to find a way to approve his many loans as we can. Please contact us if you would like to discuss a commercial mortgage loan transaction with us.

Interest Rates Expected to Rise

The Federal Reserve is expected to start raising interest rates as the labor market tightens.  According to reports, these rate hikes could start as early as September.  Please see the following article from yesterday’s New York Times:

Why Should I Use Select Commercial?

Many of our customers have asked us why they should use Select Commercial instead of just going to their local bank to obtain a commercial mortgage loan. Select Commercial has the ability to close loans that other lending institutions can not close. Since we have numerous sources of capital available to us, we can offer better commercial mortgage terms than most other individual lenders.
We would like to share some examples with you:

1) One of our recent clients was looking to purchase an apartment building in Oklahoma. The client lived out of state. Their local bank would not approve this transaction. We approved and closed this deal and at a lower rate than their bank was charging for local customers! We lend nationwide and the fact that the borrower lived out of state did not concern us.

2) Another one of our clients owned a retail strip center in New York. He was looking to buy out his partner and needed cash. His local bank did not offer cash out refinances. We allowed him to cash out over $1,000,000 to help him acquire the property from his partner, and we offered a great rate as well.

3) We recently had a client in Colorado that owned and operated a restaurant. His current rate was very high. He wanted to lower his rate and withdraw cash to open a second location. His local banks were not interested in making loans to restaurants, and certainly could not offer cash out. We had no problem with either of these situations and closed the loan.

4) Another client was looking to purchase a trailer park in Maryland. This was his first property of this type and the location was somewhat remote. None of his local banks wanted to make this loan. Again, we were fine with this transaction and we closed this transaction with no hesitation.

5) We currently have a client looking to refinance a New York City co-operative mortgage loan. Their current loan matures in 2016 but they want to lock in today’s low rates. We offered them an extended rate lock option, allowing them to apply early, lock in the rate now, and close next year!

These are just a few examples of commercial mortgage transactions that we have offered our clients recently. If you would like to discuss a scenario, please call us today at 516-596-8537 or click here for a free quote.

Federal Reserve Announces Likely Rate Hikes

Since the economic crisis and financial meltdown in 2008, the Federal Reserve has kept the Fed Funds rate at very close to zero. The Fed Funds rate is the rate that the Federal Reserve charges to its member institutions. By keeping this rate very low, banks and other financial institutions have been able to keep the interest rates they charge to their customers at historically low rates. This has allowed individuals to buy homes, cars and other large items at very low rates – stimulating an economic recovery. Business customers and commercial real estate owners have likewise been able to buy and refinance commercial property at historically low rates. Most consumer and business loan rates are tied into the rates in the United States treasury market. Since the Fed funds rate has been so low, United States treasury securities have also been very low for the past seven years.

The Federal Reserve is starting to reassess their strategy and have announced that it is likely that rates will begin to rise between now and the end of this year. An increase from the Federal Reserve will cause an increase in the United States treasuries, which in turn will mean an increase in the rates charged to consumers and business owners. For more information on likely policy from the Federal Reserve, click this Washington Post article.

If you are considering purchasing a new commercial property, investment property, or refinancing the debt on your existing commercial mortgage loan, you should consider acting now before rates increase. For more information, please contact us at 1-877-548-9454 or visit our website at

How to Find a Commercial Lender that Specializes in your Needs

Many of our applicants ask why they should do businesses with Select Commercial and not their local bank. Select Commercial is a commercial mortgage banker with access to capital from many different sources including Wall Street investment banks, insurance companies, national commercial banks, local savings institutions and many others. Accordingly, we are able to provide many different loan programs to meet in individual borrower’s needs. Whereas a local bank has a specific set of lending guidelines, we are not limited to any one institution.

Some examples include:

Cash-Out Refinances – These days, we see a large number of requests from borrowers seeking to refinance their commercial properties and obtain cash out for other purposes, including reinvestment. Many local banks are very hesitant to allow these cash out refinances. Borrowers seeking cash out from their properties are often turned away. We have no hesitation making cash out refinances to commercial property owners. Just this week, Select Commercial provided a loan to a small property owner in which he took over $1 million of cash out from his property.

Property Types – Select Commercial lends on all types of commercial and apartment properties. We have programs for owner occupied properties as well as investor occupied properties. We have years of experience lending on specialty properties such as motels, gas stations, restaurants and many other property types traditionally shunned by other commercial lenders. No one single bank can possibly satisfy all of these requests.

Loan Terms – Many, if not all, banks like to limit their fixed-rate loans to five-year terms as they do not want to take on unnecessary long-term credit risk. At Select Commercial, we often make fixed-rate loans for 10, 15, 20, and even 30 years. We also offer longer term amortizations than most local banks.

Borrower Credit – Most banks require that their borrowers have perfect or excellent credit in order to qualify. In real life, borrowers often have minor blemishes or events that have caused a temporary setback. We are willing to listen to the story and lend despite past problems. As long as a borrower demonstrates that the problems have been corrected, we are willing to lend when other lenders are not.

Rates – Local bank’s rates are often high as they need to pay for deposits and to maintain their branches. By accessing the capital markets, we are often able to provide much more competitive pricing than these local institutions. Our Wall Street investment banks and insurance companies provide pricing on a national level and not based on any one local market.

Recourse – Almost every single local bank will require that a borrower sign the loan personally. Many borrowers do not wish to put their personal assets on the line for a commercial real estate investment. Very often, our investors will not require personal guarantees. This is a very important issue should not be overlooked.

Certainty of Closing – We have seen many examples of banks making promises, and then after months of processing, their loan committees change the terms of the loan approval. This often results in the borrower canceling or delaying the closing. We are proud of our reputation for delivering approvals on the same terms as originally quoted, and timely closings.

Application Fees – Most banks will collect an application fee in order to review your application. This fee is often nonrefundable even if you do not accept the terms the bank proposes. At Select Commercial, our application process is without cost or obligation. We will review your information, and if we like the transaction, we will issue a written letter of intent spelling out the terms of the approval upfront. We do not collect an application fee for this service. Should you choose not to proceed with our loan approval, you may cancel without cost or obligation.

If you have a specific transaction that you would like to discuss with us, please feel free to call 1-877-548-9454 or click here to request a free quote.