How to Negotiate with Commercial Real Estate Lenders? Know Their Motivations.

Huber Bongolan
December 28, 2020

At StackSource, we’re a digital platform that helps match real estate investors with lenders. Our team of Capital Advisors also assist in negotiations on behalf of our clients to get the best terms from our lender relationships.

In this new blog series, we’ll explain tips and tactics you can use to succeed in negotiating the best possible loan for your real estate investment. First up is Negotiations 101: Knowing what the other side is looking for.

Topic Preview

  • There are eight main types of lenders: CMBS, Agencies, SBA, Life Companies, Banks, Credit Unions, Debt Funds, and Private Capital
  • Understand the basic lending outlook of the type of lender so you know what they want out of a financing deal

Lender Types

  • CMBS
  • Agencies
  • SBA
  • Life Company
  • Bank
  • Credit Union
  • Debt Funds
  • Private Capital

Each of these lender types have very different motivations. The types of lenders you want to approach with your deal will depend on the business plan (construction, value-add, or stabilized financing) and product type (multifamily, office, industrial, retail, hospitality, other).

Disclaimer — the below is only general guidance, not hard rules. There are always exceptions.


Commercial Mortgage Backed Security lenders will lend on stabilized, cash-flowing properties (multifamily, office, retail, hotels, etc.). This lender profile is not appropriate for construction or value-add business plans.

The qualities of CMBS lenders are high leverage, low rate, non-recourse, long term, and potential for interest only periods. I would instruct my clients that CMBS lenders have a costly prepayment penalty called Defeasance that makes it cost prohibitive to sell or refinance within the 5 or 10-year term.

CMBS loans are for long-term holders that want the most leverage and the best rates. Above all else, this type of lender values predictable cash flow in the subject property.

Agencies (Fannie, Freddie, and HUD)

“Fannie Mae and Freddie Mac were created by Congress. They perform an important role in the nation’s housing finance system — to provide liquidity, stability and affordability to the mortgage market.” — Federal Finance Housing Agency.

I would send them stabilized cash-flowing multifamily properties.

Similar to CMBS, agencies are high leverage, low rate, non-recourse, long-term, and also have potential for interest only periods. Agencies and CMBS sometimes compete for stabilized multifamily financing.

Agency loans are for long-term multifamily holders that want high leverage and low rates. They usually have either yield maintenance or step down prepayment penalties (a penalty cost percentage of the loan amount that is due if the loan is paid off early — usually higher in the early years of the loan term and steps down as the term matures).


The Small Business Administration insures loans originated to small business owners that want to own the properties they do business in. These are called “owner-occupied” or “owner-user” deals.

The government wants to help small businesses thrive so they offer very high leverage (up to 90% LTV), long terms (up to 30 years), and very good interest rates (typically 2.5%-5%).

Life Companies

Life Companies are conservative. Their money comes from member life insurance policies so they need to be extremely careful to preserve that capital.

They tend to invest in lower risk assets. These properties are usually in Top 20 MSAs, stabilized / cash flowing, and the owner only needs low to moderate leverage.

Life Companies are willing to get very aggressive on interest rates because they usually care more about capital preservation over risky plays for more yield.


Banks are highly motivated by client relationships. These relationships are typically prioritized by how much the client has in deposits at the bank and how many other product lines they have with the bank as well. Not all banks require that my clients set up additional depository accounts but it helps to get deals approved.

Banks typically like stabilized properties but can also do ground-up construction and value-add plays. They will go outside of normal credit box guidelines for their best clients.

These loans are usually full recourse, 3–10 year terms, amortized over 20–25 years, and typically have step down prepayment penalties.

Credit Unions

Credit Unions are similar to banks in that they prioritize relationships and typically like stabilized properties; but, can also do ground-up construction and value-add projects sometimes (not as typical).

Their loan terms are typically 5–15 years amortized over 20–25 years. Similar to banks they are also full recourse. The BIG difference from banks is that federal credit unions typically do NOT have a prepayment penalty for selling or refinancing the property.

Debt Funds

A real estate debt fund pools money from different investors to provide debt to real estate projects. Debt funds typically are much more flexible on who and what they lend on.

Debt funds lend on transitional properties (these can be construction and/or value-add plays), providing bridge capital to developers and investors. Bridge capital gives more time and/or money for an investor to bridge the gap to accomplish their business plan. It helps get the property stabilized and ready for long term permanent financing from one of the other lenders above.

Debt fund loan terms usually range between 6 months to 3 years with interest-only payments. Interest rates are most commonly in the higher single digits, though debt funds may seek double-digit returns for their investors through a combination of fees, leveraging their loans, or seeking higher yield mezzanine lending opportunities. Each deal is assessed on a case-by-case basis.

Private Capital

Private Capital lenders are usually the “lenders of last resort” because it is simply a rich person’s (or people’s) money that they’ve made available to lend out to real estate investors. Because it is private, they are the most flexible.

Similar to debt funds, loan terms usually range between 6 months to 3 years with interest rates between 7%-15% depending on the deal. Each deal is also assessed on a case-by-case basis.

For both debt funds and private capital lenders, I am accustomed to hearing “we will lend on any deal that makes sense.” A deal “makes sense” if the business plan is strong and it is clear how the lender will be paid off when the loan comes due.

Good luck out there my friends.

I’m happy to engage with you in the comments so that everyone can learn. If you prefer to share privately, feel free to email me at

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