Bank financing in commercial real estate is distinct from agency, CMBS, or life company loans in several key ways. Here’s what makes it unique:
Key Characteristics of Bank Financing
|
Feature |
Description |
|
Flexibility |
Banks can tailor loan terms to the borrower’s needs, including interest-only periods, recourse options, and custom amortization schedules. |
|
Shorter Terms |
Typically 3–10 years, often with balloon payments at maturity. |
|
Recourse Loans |
Many bank loans are recourse, meaning the borrower is personally liable if the loan defaults. |
|
Faster Execution |
Banks can often close loans more quickly than agency or CMBS lenders. |
|
Relationship-Based |
Lending decisions may be influenced by the borrower’s relationship with the bank, not just the asset. |
|
Construction & Transitional Financing |
Banks are more likely to finance ground-up construction, heavy value-add, or transitional assets. |
|
Covenants & Monitoring |
Bank loans often include financial covenants (e.g., minimum DSCR, LTV limits) and require regular reporting. |
When Bank Financing Is a Good Fit:
- You need speed and flexibility relative to Agency Debt.
- The property is not yet stabilized (e.g., lease-up, renovation).
- You have a strong banking relationship.
- You’re comfortable with recourse or partial recourse.
- You plan to refinance or sell before the loan matures.
Comparison Snapshot
|
Feature |
Bank Loan |
Agency Loan |
|
Term |
3–10 years |
5–30 years |
|
Recourse |
Often yes |
Usually non-recourse |
|
Interest Rate |
Higher (esp. for riskier deals) |
Lower |
|
Flexibility |
High |
Moderate |
|
Speed |
Fast |
Moderate |
|
Use Case |
Construction, bridge, value-add |
Stabilized multifamily |
