Recourse versus Non-recourse in commercial mortgages

by | Feb 2, 2024

Recourse? Non-Recourse? Bad-boy carveouts?

One of the most common questions that comes up is if an investor should consider a recourse, or non-recourse, commercial mortgage. There are advantages and disadvantages to both.

The biggest perceived advantage of non-recourse financing is that in the event of default, the lender cannot come after assets other than the property itself. However, due to ubiquitous “bad actor” carveouts, this protection isn’t as strong as it is often perceived. A second perceived advantage is that non-recourse mortgages do not appear on one’s personal credit report, but this isn’t quite the whole picture. If you close in your personal name, it will appear on your credit report. If you close in the name of a business entity, including either an established or new LLC or S-Corp, it will not. But that’s true even for recourse mortgages!

The biggest disadvantage of non-recourse financing is that the terms of the mortgage itself generally (but not always) are not as good. Out of our pool of 750 commercial lenders, from “Big Banks” to local credit unions and CMBS, we may only get a very small number of bids if part of the search criteria is “non-recourse only,” and the only way to expand that is to drop the LTV or accept a higher interest rate, fees, or similar. It’s fairly trivial for us to present both options, however, so the investor can see the cost difference for themselves, and determine if it’s a good fit. Click here to schedule a consultation if you are looking to see what your options look like, in California or elsewhere. We finance most commercial asset classes, including apartment buildings, warehouses, retail centers, etc.

The Winning Play

The biggest advantage of recourse financing is that when we take your transaction to market, we have the broadest appeal to the greatest number the >750 lenders in our network, creating a bidding war between them. For very large transactions at very low LTVs there is often no term or rate difference between recourse and non-recourse, but most of the time casting the widest net among our network of lenders produces the best results, and that at the very least means being open to both recourse and non-recourse financing. Once you see all the options, make a choice at that point.

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