Why Closing Commercial Loans is Harder Today

Closing commercial bank loans is more challenging today, but not as difficult as the media suggests.

Many multifamily investors have been on the sidelines since 2022 — if that's you, here's the latest.

Nearly every lender I work with— banks and non-banks alike— is now asking about cost basis, even if the property was purchased more than two years ago. This is a shift from the years leading up to 2022, when banks would generally ignore cost basis if you had 2 years of seasoning at the property.
This change makes sense given that many property values have either declined or remained flat since 2022.
However, if you purchased the property in 2023 or 2024, there’s a stronger case to ignore cost basis, especially if the borrower has been able to increase rents.
Why this matters: When a lender focuses on cost basis, they often limit you to the lessor of loan-to-value (LTV) and loan-to-cost (LTC), rather than just LTV. This constraint reduces your ability to recapture any equity for reinvestment in other deals.

Banks are now expecting higher post-close liquidity from borrowers. While there’s no hard-and-fast rule, they generally want more cushion than before.
The specific requirement really depends on deal size and property stabilization, but banks are now often requesting 10-20% in post-close liquidity rather than the previous 5-10% range.

For the past couple of years, many banks have required 10% compensating balances. While some still maintain this expectation, I’m seeing a lot of banks lowering or eliminating their minimum compensating balance requirements.
Leading up to 2022, compensating balance requirements were rare.

Lenders have been more selective about asset quality.
The older the asset, the more interested they are in verifying the actual condition of the property. Banks are being more conservative across the board.