Commercial mortgage up for renewal. How to work with the bank if selling?

[RE123RE]

Hello,
A friend of mine has a TD commercial mortgage on a 10-plex.
His mortgage is up for renewal in September.
If he plans to sell end of this year, say around December, how do banks treat that?
Are the banks OK keeping the mortgage open for a few months until property is sold?
If I understand correctly, banks do not offer variable rate mortgages for apartment buildings.
Obviously, he does not want to sign on a new 3 or 5 years term mortgage and then pay tens of thousands in penalty if he sells.
We are asking as I heard even 1 year term commercial mortgage is not common/requires bank's apecial approval.
Is this correct?
Thank you

 

[Cory Sperle]

It depends on the bank, as they can often offer short term financing in this regard. Keep in mind a sale in December likely still would not close until March or so from normal due process. Yes you can get variable rate mortgages, but typically at only prime + for a year, if you plan to preposition the property and refinance or sell a year down the road. Talk to TD first to see what your options are, and then speak to a mortgage broker, but either way it will cost and if he plans to sell it is more logical to do so now, rather than wait until the end of the year.

 

[Thomas Beyer]

Doing nothing and delaying a mortgage by 2-3 months is an option, i.e. dragging it along as they will not foreclose if you are only 3 months late. An option is to get a variable extension though but that costs you around 1% upfront, once.

 

[RE123RE]

Doing nothing and delaying a mortgage by 2-3 months is an option, i.e. dragging it along as they will not foreclose if you are only 3 months late.

Thank you. Does this not risk hurting your credit history and your important relationship with the bank? I guess you do not really recommend doing that but rather as a last resort.

An option is to get a variable extension though but that costs you around 1% upfront, once.

Does TD usually allow a variable extension upon renewal? Or only if you tell them it is for the purpose of selling?
(I understand there is a 1% fee)
From your experience with TD, are they usually more flexible if you tell them upfront you plan to sell?
What do you recommend telling the bank if you are not sure yet whether to sell or refinance, with them or with another bank?

Do you think asking TD for a 1 year term is a good possible option? (penalty-wise maybe it is better if you saved the 1% fee and can sell around the the time it ends)

 

[Thomas Beyer]

Talking to the bank is always a good option.

It depends if you have a firm sale, and are just waiting to close or you are just fishing for a sale that could take 6-12 months.

 

[Cory Sperle]

Doing nothing is not an option here, and yes will certainly hurt your relationship with the bank, possibly credit, and most important of all reputation. If that doesn't bother you I say go for it, otherwise talk to the bank and explore your options and then set a plan A,B, and possibly C.

 

[RE123RE]

Talking to the bank is always a good option.

It depends if you have a firm sale, and are just waiting to close or you are just fishing for a sale that could take 6-12 months.

He is just fishing for a sale and might even prefer to renew for 1 year instead of selling.
Is TD really doing you a favor if they agree to a 1 year term on renewal or is it not that uncommon and the random TD rep with whom my friend talked on the phone, just did not know?
Thank you

 

[Thomas Beyer]

A short term extension is quite common as this situation is quite common.

 

[Cory Sperle]

it's not cost effective to pay the fees involved in an extension, and it makes more sense to sell before and pay a small pre-payment penalty and extend only if you have to. He needs to make a decision to sell or renew for 3-5 years.

 

[Thomas Beyer]

it's not cost effective to pay the fees involved in an extension, and it makes more sense to sell before and pay a small pre-payment penalty and extend only if you have to. He needs to make a decision to sell or renew for 3-5 years.

Yes that is better but life situations sometimes necessitate shorter time line options.

 

[Vine Group]

Most banks offer short term rates including a 1 year term. I'd recommend he inform TD of the intention to sell. TD may be able to structure a short or open term loan.

 

[RE123RE]

Most banks offer short term rates including a 1 year term. I'd recommend he inform TD of the intention to sell. TD may be able to structure a short or open term loan.

Thank you. This is of course the best option. With his extensive experience working with big banks including TD, wouldn't Thomas suggest a 1-year term, had it been an option with TD?

 

[Thomas Beyer]

Commercial mortgages come in all shapes, lengths and sizes. Shop around. Usually a broker does that best. Be prepared for upfront 1-3% fees though, so getting a one year extension with current bank at market is often the cheapest.

 

[Cory Sperle]

Yes that is better but life situations sometimes necessitate shorter time line options.

Very true! but.. If this were you in this situation, your mortgage was due in 5 months (September), you would not be thinking of a sale date in December, you would be selling NOW. Unless of course there was something else going on, like a very poorly performing property, high vacancy, or other major issue and you absolutely needed to 'buy' time to rectify the situation and did not wish to renew another 3-5 year term. I suspect something similar is going on here.