As real estate sellers and purchasers adjust to the current lending and interest rate environment, Bass, Berry & Sims attorney Gil Uhlhorn examined the use of loan assumptions as an important tool for closing real estate deals.
“Under the low interest rate environment that existed for many years in the commercial real estate market, the assumption of an existing loan in connection with a real estate acquisition was not a popular structure, given the relative ease of closing on new acquisition financing or even acquisition or renovation financing,” Gil wrote. “However, sellers in today’s market are finding that a low-rate, assumable loan is an attractive option for many potential purchasers.”
While this loan assumption gives potential purchasers the ability to transact at a value that aligns more closely with the sellers’ original underrating expectations for an exit, Gil notes that potential purchasers should be thoughtful about the assumption process and consider various factors that might not be applicable in connection with new loan origination.
Accordingly, Gil provided guidance on five factors potential purchasers should consider, including:
- Loan Documentation
- Replacement Guarantor
- Structure Requirements
- Permitted Transfers
- Cost and Time
For more insight on what purchasers/new borrowers should review within these five factors, read Gil’s full article “5 Things to Consider Before Assuming a Loan,” published by Commercial Property Executive on August 2 and available online.