Commercial Loans in California — Multifamily, Office, Retail

What properties qualify as commercial in California

California commercial real estate loans cover any property that is not 1–4 unit residential owner-occupied (which is consumer / residential lending). The main categories:

Multifamily 5+ units: The bread-and-butter of California commercial lending. 5–unit small apartment buildings up to large 200+ unit complexes. Fannie Mae and Freddie Mac both run multifamily-specific programs (DUS and Optigo) offering some of the best long-term rates in commercial finance.

Office: Single-tenant or multi-tenant office buildings. Coming out of post-pandemic vacancy challenges; medical office and Class A suburban office are strongest.

Retail: Strip centers, single-tenant net-lease retail (Walgreens, Starbucks ground leases), grocery-anchored centers. Quality of tenant credit drives pricing.

Industrial / warehouse: The hottest commercial class in California due to e-commerce demand. Last-mile distribution centers in LA, Inland Empire, and Bay Area trade at premium pricing.

Mixed-use: Retail on ground floor + apartments above. Common in dense California urban infill developments. Underwriting splits the income streams.

Self-storage: Increasing institutional interest; strong operating margins.

Hospitality (hotels/motels): Specialized lenders; SBA 504 and 7(a) often involved.

How California commercial loans get underwritten

Commercial loans qualify on the property's economics, not the borrower's W-2 income. Three primary metrics:

Net Operating Income (NOI): Annual gross rental income minus operating expenses (property tax, insurance, management, repairs, utilities, vacancy allowance). NOI is the cash the property produces before debt service.

Debt Service Coverage Ratio (DSCR): NOI ÷ annual debt service. A DSCR of 1.25 means the property generates 25% more income than the mortgage requires. California commercial lenders typically require 1.20–1.30 minimum DSCR.

Loan-to-Value (LTV): Loan amount ÷ appraised value. Most California commercial programs cap at 65%–75% LTV.

The loan amount is the lesser of (a) what the LTV cap permits and (b) what the DSCR can support at the proposed rate. In high-cap-rate California markets (parts of Central Valley, Inland Empire), DSCR is rarely the binding constraint. In low-cap-rate markets (Bay Area, coastal LA), DSCR often is — meaning the property cap rate caps the loan size.

What California-specific considerations apply to commercial loans?

Rent control: AB 1482 caps annual rent increases at 5% + CPI (max 10%) on most California multifamily 15+ years old. Local rent control (LA, SF, Oakland, San Jose, Berkeley) can be stricter. Lenders model future income with rent-control constraints baked in.

Soft story retrofit requirements: Los Angeles, San Francisco, Berkeley, and other California cities require seismic retrofits on soft-story buildings. Lenders verify retrofit status before closing.

Mello-Roos and CFD assessments: Common in newer California commercial developments. Always pulled into NOI calculation.

Insurance availability: California's commercial property insurance crisis has impacted multifamily and hospitality. FAIR Plan coverage is increasingly common; lenders require evidence of adequate coverage at closing.

Prop 13 reset: Commercial property reassessment on transfer (just like residential). Critical for cash-flow underwriting — the new property tax basis matters more than the seller's old basis.

Which California commercial loan programs does Save Financial access?

Save Financial originates California commercial loans through multiple channels — the right one depends on property type, size, and structure:

Agency (Fannie Mae DUS / Freddie Mac Optigo): Best long-term rates for stabilized multifamily 5+ units. 10-year fixed at sub-6% in many cases. Best for hold-forever investors.

Bank portfolio: Local and regional bank balance-sheet loans. 5-year and 7-year hybrid ARMs. Best for $1M–$10M deals where speed and relationship matter.

CMBS (commercial mortgage-backed securities): Best for $5M+ stabilized properties. 10-year fixed with longer interest-only periods, but assumability and prepayment penalties are stricter.

Life insurance companies: Best for trophy assets in core markets. Lowest rates available for the right property.

Private / bridge: For value-add, repositioning, or properties that don't yet qualify for permanent financing. 12–36 month terms at higher rates.

SBA 504 / 7(a): Best for owner-user commercial — where you operate your business out of the building. Up to 90% LTV with strong terms.

What are common California commercial loan scenarios?

Scenario 1: 12-unit apartment building in Long Beach, $4.2M purchase
Buyer has 30% down ($1.26M); requesting $2.94M loan. Property NOI is $238,000. At 6.85% on a 10/30 fixed, annual debt service is roughly $231,000. DSCR = 1.03 — too low for agency. Solution: Freddie Mac Small Balance Loan with 25% down ($1.05M cash + $300K seller carryback as preferred equity), reducing the lender debt to $2.85M, lifting DSCR to 1.20.

Scenario 2: Strip retail center in Riverside, $3.8M refinance
Borrower owns free and clear, wants $2.5M cash-out at 65% LTV for a separate acquisition. Three tenants on long-term leases generating $295,000 NOI. CMBS quotes 6.95% 10-year fixed with 3 years interest-only. Close time: 75 days.

Scenario 3: 8-unit value-add multifamily in San Bernardino, $1.6M purchase
Property has below-market rents ($1,100/unit when market is $1,650). Borrower needs $1.2M bridge for acquisition + $200K rehab budget. 18-month bridge at 9.5%, then refinance to Fannie Mae DUS after lease-up at 6.65% 10-year fixed.