Commercial Multifamily Loans: A Guide for 5+ Unit Apartment Buildings
Once a building crosses five units, it stops being a residential loan and becomes commercial. The underwriting shifts from you to the building: its rent roll, its expenses, and its net operating income.
How Commercial Multifamily Is Underwritten
- Net operating income (NOI): rents minus operating expenses. This is the number everything is built on.
- DSCR: NOI divided by annual debt service. Lenders commonly want 1.20–1.25x or better.
- LTV: up to 75–80% on strong, stabilized properties.
- Sponsor: net worth, liquidity, and experience operating similar buildings.
Bridge vs. Permanent Debt
Bridge loans fund value-add plays — buildings with vacancy, deferred maintenance, or below-market rents. Short term, often with renovation funds, designed to be refinanced.
Permanent loans fund stabilized buildings. Fixed terms of 5–10 years are standard, amortized up to 30 years — and full-term interest-only is available on qualifying deals, which keeps cash flow strong for the whole hold.
Mixed-Use and New Construction
Retail-over-residential and other mixed-use buildings finance similarly, with the commercial space underwritten on its leases. Ground-up construction and development funds in draws released as each stage is completed, then converts or refinances to permanent debt at stabilization.
Construction: Loan-to-Cost and Interest Reserves
Ground-up deals size on loan-to-cost (LTC), not value. Senior construction debt commonly lands around 60–75% LTC, and lenders generally want sponsor equity in first, before any loan draws. The budget usually carries an interest reserve so the loan pays its own interest during construction and lease-up; that reserve counts as a project cost and increases the equity you put in. A completion guarantee is typical.
Leverage by Asset Class
Typical maximum leverage on stabilized commercial property, before DSCR constraints: multifamily highest (often 75–80%), then industrial and anchored retail (often 65–75%), office and mixed-use lower, and hospitality and special-purpose assets usually the most conservative (often 55–65%). Owner-user deals can go higher through SBA 504.
What Drives the Rate
Commercial pricing is an index (Treasury or SOFR) plus a spread. The spread moves with asset class, leverage, DSCR, sponsor strength, loan size, term and prepayment flexibility. For a detailed look, read our guide to spreads, agency execution and prepayment.
Matching the Capital Source
- Banks and credit unions: lowest cost on stabilized assets with recourse and deposit relationships; often 5–10 year terms.
- Agency and CMBS: long fixed terms, non-recourse with carve-outs, and stricter prepayment.
- Debt funds: higher leverage and flexible floating-rate structures for transitional business plans, at higher cost.
- Bridge and private lenders: speed and flexibility for value-add, timing or complexity.
The Realistic Timeline
From signed term sheet, a straightforward bank or bridge loan often closes in 30–45 days, agency in 45–75 days and HUD in several months. Third-party reports (appraisal, Phase I environmental, property condition) are usually the critical path, so order them early. Title issues, estoppels, and slow rent rolls or T-12s are the usual causes of delay.
What to Send a Lender
- Current rent roll and trailing 12-month operating statement
- Purchase contract or current debt details
- Renovation budget and business plan (value-add)
- Sponsor resume and personal financial statement
Go deeper: Underwritten NOI, sources and uses, and sponsor liquidity · Non-recourse carve-outs · How placement compensation works
Smaller Than 5 Units?
One-to-four unit rentals usually fit a DSCR loan. Own five or more single-family rentals? Consider a portfolio loan.
See the full program on our commercial multifamily loans page.
California Business Capital | Fresno, California | info@cabizcapital.com | 559-549-4717