Portfolio loans on the other hand usually provide you with flexibility. They allow you make business decisions in reaction to changes in the economy, to the property or to your own situation. Portfolio and conduit loans each have pros and cons, but getting the right loan for your long term needs often means more than getting the lowest rate.

Conduits - Pros and Cons:

Pros-

•        Long-terms 
•        Lowest available Fixed-rates
•        Non-recourse (except for certain industry-standard carve outs)
•        Assumable (with certain stipulations)

 Cons-

•        Lockout (loan is closed to prepayment in early loan years)
•        Prepayment fee thereafter (Yield Maintenance or Defeasement**)
•        The property financed must be "income producing" (current cash flow)
•        Reserves usually required for taxes, insurance, and major property expenditures
•        Allow no changes to loan terms or alterations or additions to the property
•        Allow no additional borrowing against the property
•        The borrowing entity must be a Special Purpose Entity (SPE- such as a corporation or LLC to own and manage only the specific property)

**Yield Maintenance involves the borrower paying the lender a single lump sum to prepay the loan. The amount of that lump sum is determined by calculating how much money would need to be invested in Treasury bonds such that the Lender would still attain the same yield as if the borrower made all scheduled mortgage payments until maturity. Yield maintenance premiums are designed to make Lenders indifferent to prepayments and to make refinancing not a windfall to borrowers. The prepayment premium will equal the present value of any costs to the lender resulting from the difference in interest rates between the date of the note and the date on which the prepayment is made. In times when Treasury rates are high, the calculation may result in zero (though generally there is a 1% minimum prepayment fee).

Defeasance involves the borrower arranging for the purchase of Treasury bonds and notes and delivering them to the lender as a substitution of collateral for the Note. The Treasuries are to be in sizes and amounts such that the cash flow income from the Treasuries permits the Lender to maintain the same stream of income as if the borrower had continued to make all scheduled mortgage payments until the original maturity date. Prepayment with defeasance is intended to both make Lenders more indifferent to prepayments and to make prepayments not a windfall to borrowers.

Portfolio loans:

Because portfolio lenders have a vested interest in the success of your property; they work with borrowers, often allowing changes that will maintain or enhance a property's value.

• Allow flexibility in terms and property; commonly allowing additional borrowing and/or expansion of a property to take advantage of opportunities.
• Usually offer a wide variety of terms from short term adjustable rates to long fixed-rate structure. They are available in fully amortizing loans, with and without balloons and with varying prepayment structures.

Flexibility vs. Lowest Rate - Hidden Cost of the Lowest Rate Loan

Conduit loans, while superbly suited to borrowers purchasing fully developed properties with locked-up leases, can be very costly when the property is not fully developed and the borrower wants or needs to explore those possibilities.

Lets say you negotiate a medium-sized strip mall on a busy, suburban street and of course want a loan with the best possible interest rate. But during the due diligence period you discover that the property has excess parking and you're thinking you could put in a Starbucks greatly enhancing the property value. In order to accomplish this the lender will have to approve the carve-out, the lot-line adjustment and partially reconvey the carved-out piece of property, as well as finance the construction of the coffee house or allow a third party to finance the addition. With a conduit loan, these types of changes would cause the loan to be called with a prepayment penalty and with the  penalties and new loan costs the deal becomes unfeasible. Not with a portfolio loan.

Consider another scenario. You purchase a building with under market rate leases and after a little needed renovation and renegotiating market rate leases, you've increased the value of the property. You'd like to borrow an additional amount against the equity increase to purchase an adjacent building with similar opportunities.  Or alternatively your largest tenant goes out of business and a new tenant wants the space but requires major renovations and a small building addition  You really must give the tenant what he needs or you're left with a half empty building. The question is "Will the current lender allow you to borrow against the increased equity for the downpayment of that adjacent building or to build a small addition?"  The answer is "probably not" if the loan on the property is from a conduit lender. The property will have to have been financed by a portfolio lender in order to provide that kind of flexibility.

So, if you foresee a time when you will want to take equity out of your property or make property alterations, you'll want go with a portfolio lender.

Do the math and ask:

• Is the property fully developed -- does it have upside potential?
• What is the tenant situation?
• Will the lender fund any future tenant improvements?
• What are the short and long-term goals for the property?
• As you build equity, will you want to take some of it out?
• How will changes in the economy affect your goals for the property?
• If you determine that a portfolio loan will best suit your needs, bear in mind that not all portfolio lenders are created equal.  Let Lenders Commercial Network develop a loan to suit your goals.

Rely on the Lenders Commercial Network:

• Expertise in commercial real estate transactions and business capital;
• Flexibility through portfolio lending to help you create more value in a property;
• Lowest rates through conduit lending on stable long term properties;
• Access to decision makers, we work directly with you;
• Offering both conduit and portfolio loans means that we can meet your specific needs.