Avatar's Blog
» Creative Loan Packaging: Blanket Loans
Hard money commercial lenders tend to fund up to 65% of what is commonly termed, "the fair market value" of income producing commercial real estate property. Brokers would have an easy and profitable career indeed if lenders routinely funded 100% of the cost of purchase or even up to 80 - 90% of the value of properties for refinances. Since that's not the case, here are a few tips for creative loan packaging that will help to meet the needs of clients as well as the funding requirements of lenders.
Blanket Loans are loans utilizing more than one piece of real estate collateral. Here's an example of a commercial real estate blanket loan:
Assume a borrower wishes to purchase a retail strip mall at a cost of $2,000,000. As a hard money lender, Avatar will lend up to $1.3 million (65%) for the purchase. The borrower must come up with the balance. Note that hard money lenders will lend up to 65% of the lesser of the actual price paid for the property or the appraised value. If the borrower is getting a 'fire sale' price and the property is appraised at $5,000,000, the 'fair market value' of the property is still $2,000,000. It is the price for which the current owner is willing or is forced to part with the property on the market today. Therefore, we work with a price of $2 million and a first lien loan of $1.3. Read on...
Assume further that the borrower already owns two other pieces of property: an apartment complex with a recent (6 months or less) appraisal of $1,500,000 and a skating rink valued at $800,000. The skating rink has been in the family for years. It is free and clear. The apartment building has a mortgage on it for $420,000. Both properties operate with some profit. Here's the summary:
| Property | Value/Price | Mortgage |
| Skating Rink | $ 1,500,000.00 | $ 800,000.00 |
| Apartment Building | $ 1,200,000.00 | $ 420,000.00 |
| Total | $ 3,700,000.00 | $1,220,000.00 |
| $ 2,405,000.00 | 65% of the value of additional properties | |
| $(1,220,000.00) | Less amounts to be paid off to current first lien creditors | |
| $ 1,185,000.00 | Potential net additional funds from a blanket loan | |
| $ 1,300,000.00 | 65% hard money loan on the new property purchase | |
| $ 2,485,000.00 | Total potential funds available by collateralizing all three properties |
The borrower can potentially take out a loan to cover the cost of the purchase and have some extra working capital to make some improvements or market the properties as well. Blanket loans are an excellent way to get additional capital when 65% of the cost is insufficient.
