Commercial Real Estate Loans in California

I’m Michael DiVita — DRE #01372066 | NMLS #241655, DiVita Home Finance (DRE #01818285 | NMLS #323700), Tiburon, CA. I’ve been in California lending since 2000 and founded DiVita Home Finance in 2007. I’m known as a creative mortgage broker: when a bank says no, I find the lender and the loan structure that can say yes. I arrange commercial, bridge and investor financing for deals that don’t fit a bank’s box. Call (800) 239-1103.

Commercial real estate loans finance apartment buildings of five or more units, mixed-use, retail, office, industrial and owner-occupied business properties. They’re sized mainly on the property’s net operating income: most permanent lenders want a debt service coverage ratio (DSCR) of roughly 1.20–1.25x or higher and 25–35% down, while SBA 504 loans let an owner-occupying business buy with about 10% down.

There isn’t one commercial loan — there are banks and credit unions, life insurance companies, CMBS conduits, agency multifamily programs, SBA lenders, debt funds and private bridge lenders, each with a different appetite. A small mixed-use building with below-market rents, a vacant retail building you want to reposition, and a stabilized industrial building all end up with different lenders. My job is to figure out which capital source actually fits, and how to get from a messy acquisition to a clean long-term loan.

Commercial Loan Types

Loan type	Best for	What to know
Bank / credit union portfolio	Stabilized properties, relationship borrowers	Commonly 65–75% LTV; usually recourse; often 5–10 year fixed periods on 25–30 year amortization
Agency multifamily (Fannie Mae / Freddie Mac)	Stabilized apartment buildings (5+ units)	Long fixed terms; strict occupancy and property condition standards
CMBS	Larger stabilized assets	Often non-recourse with interest-only options; less flexible prepayment (defeasance or yield maintenance)
Life company	High-quality, low-leverage assets	Among the best long-term fixed pricing, but selective
SBA 504 / 7(a)	A business buying the building it occupies	About 10% down; business must occupy at least 51% (60% for new construction). See SBA loans
DSCR / non-QM investor loans	1–4 unit rentals and some small mixed-use and 5–10 unit properties	Qualify on the property’s rent rather than personal income. See DSCR loans
Bridge / hard money	Vacant, under-rented or transitional properties; fast closings	Short-term, interest-only, sized on as-is value; higher cost. See bridge loans

Rates move with Treasury yields and lender appetite, so I don’t publish a rate sheet. As a general pattern, stabilized multifamily and industrial price better than retail, and office carries the most lender caution right now.

How Commercial Lenders Size a Loan

The loan amount is the lowest of what these tests allow:

• Net operating income (NOI): gross rents, minus a vacancy allowance, minus operating expenses (taxes, insurance, utilities, repairs, management, reserves). Debt service isn’t an expense in NOI.
• DSCR: NOI ÷ annual debt service. Example: $150,000 NOI ÷ $110,000 annual payments = 1.36x. Many permanent lenders want 1.20–1.25x or higher, and more for riskier property types.
• Loan-to-value (LTV): the loan as a percentage of appraised value, commonly 65–75% for stabilized properties.
• Debt yield (some lenders): NOI ÷ loan amount, a check that doesn’t depend on interest rates.

Lenders size on in-place income, not what rents could be. In much of California, long-term tenants pay well below market, which depresses NOI and the loan amount even when the building is worth more. That’s the gap bridge and value-add financing is built to cover.

California-specific underwriting points

• Property tax resets on purchase. Under Proposition 13, the assessed value is reset at purchase, so lenders underwrite taxes on your price — not the seller’s old tax bill. Special assessments and Mello-Roos can add to it.
• Rent limits. Most apartment buildings more than 15 years old fall under the statewide Tenant Protection Act (AB 1482), which caps annual increases at 5% plus local CPI, up to 10%, and many cities have stricter local rent control. Value-add rent assumptions have to respect both.
• Insurance. Premiums and wildfire or earthquake requirements can move DSCR meaningfully; get quotes early.

Property Types

• Multifamily (5+ units): the deepest lender pool — agency, bank, CMBS, DSCR (for smaller buildings) and bridge. See the DSCR guide for 5–10 unit buildings.
• Mixed-use: harder to place because lenders categorize it by the residential/commercial split. A mostly residential building may qualify for portfolio residential or DSCR programs; a mostly commercial one goes to commercial lenders. Limited business use can even fit agency and FHA loans — Fannie Mae allows a one-unit, owner-occupied, primarily residential home where the borrower owns and operates the business, and FHA allows owner-occupied 1–4 unit properties with at least 51% of the building’s floor area residential. Most investor mixed-use deals still need portfolio or commercial financing.
• Retail: lease terms, tenant credit and the trade area drive the loan. Single-tenant NNN properties with long leases finance best.
• Office: lenders are cautious about vacancy and upcoming lease rollover; medical office is viewed more favorably than general office.
• Industrial: generally strong lender demand, especially in logistics corridors such as the Inland Empire. Tight cap rates can make DSCR the limiting factor.
• Owner-occupied: if your business occupies the building, compare SBA 504 against conventional before you do anything else.
• Cannabis tenants: cannabis remains illegal under federal law, so most banks and all SBA programs avoid properties with cannabis tenants. Private and specialty lenders may consider them at higher cost.

Value-Add: Bridge Now, Permanent Later

A value-add deal — below-market rents, high vacancy, deferred maintenance or poor management — usually can’t qualify for permanent financing on day one because the income isn’t there yet. The standard playbook:

1. Acquire with a bridge loan sized on as-is value (and sometimes a renovation holdback), interest-only, typically 12–36 months.
2. Execute the plan — renovate, re-lease at market rents, fix operations — and document the new income.
3. Refinance into permanent debt once occupancy and rents are stabilized. The higher NOI supports a higher value, and the permanent loan pays off the bridge.

Illustration (hypothetical): a 24-unit building bought for $2,400,000 with $120,000 of NOI. After a $300,000 renovation and lease-up, NOI reaches $220,000. At an assumed 5.5% cap rate, that NOI supports a value of about $4,000,000. A 70% permanent loan on that value ($2.8 million) could repay a bridge loan and return much of the original equity. The real risks are the assumptions — lease-up speed, renovation cost, rent limits and where cap rates and interest rates are when you refinance. Underwrite conservatively and budget bridge interest for longer than you expect.

Buying a Commercial Property: The Process

1. Set criteria — asset type, market, return targets, hold period and capital available.
2. Underwrite before offering — build NOI from the actual rent roll and expenses, then test DSCR at realistic loan terms.
3. Due diligence — rent roll and lease audit, tenant estoppel certificates, Phase I Environmental Site Assessment (most lenders require one; industrial, gas station, dry cleaner and auto sites are more likely to need Phase II testing), property condition report, title, zoning and three years of operating statements.
4. Finance in parallel — engage the lender at the start of due diligence, not the end. Bridge loans can close in a few weeks; bank, agency and CMBS loans commonly take 45–60+ days; SBA 504 often longer.
5. Read the prepayment terms — step-down penalties, yield maintenance or defeasance can matter more than rate if you plan to sell or refinance.

Regional Notes

• Los Angeles County: a fragmented market with distinct submarkets — Westside, Downtown, South Bay, San Fernando Valley — and very tight infill industrial along the 710 corridor. Many small buildings carry below-market leases that limit loan size.
• Orange County: low cap rates on retail and office mean tight DSCR; interest-only periods or lower leverage are often part of the structure. Irvine is a major office and medical office market.
• Inland Empire: logistics and industrial along the I-10 and I-15 corridors (Ontario, Fontana, Perris, Moreno Valley), plus retail following population growth in Temecula and Murrieta.
• Bay Area, San Diego and Sacramento: same underwriting principles; local rent control and permitting timelines are the biggest variables.

What to Send for a Quote

• Property address, type, size and purchase price (or estimated value for a refinance)
• Current rent roll and copies of major leases
• Trailing 12-month and prior two years’ operating statements
• Your business plan for the property and desired loan amount
• Your experience owning or managing similar property and a personal financial statement

Frequently Asked Questions

How much down payment do I need for commercial property in California?

Investor-owned commercial property usually needs 25–35% down with permanent financing, depending on property type, DSCR and your experience. A business buying the building it occupies can often use an SBA 504 loan with about 10% down (15% for a new business or special-purpose property, 20% if both). Bridge lenders generally want meaningful equity at closing too.

What DSCR do I need for a commercial loan?

Many permanent lenders want at least 1.20–1.25x, with higher requirements for riskier property types like office or retail with short leases. DSCR is net operating income divided by annual debt service. If the property doesn’t meet it yet, a bridge loan can finance the acquisition while you increase income, then you refinance.

Do commercial loans require personal tax returns?

Often, but the property’s income is the main test. Banks commonly want personal financial statements and tax returns plus a personal guarantee. Some DSCR, bridge and CMBS programs rely mostly on the property and your liquidity and experience. SBA and owner-occupied loans look closely at the business’s financials.

How long does a commercial loan take to close?

Bridge and private loans can close in a few weeks with clean title and a fast appraisal. Bank, agency and CMBS loans commonly take 45–60 days or more, and SBA 504 loans often take longer. Due diligence — appraisal, Phase I environmental report, lease review — usually runs alongside financing and often sets the timeline.

Can I get a conventional or FHA mortgage on a mixed-use building?

Sometimes, if it’s mainly a home. Fannie Mae allows a one-unit, owner-occupied, primarily residential property with business use when the borrower owns and runs the business, and FHA allows owner-occupied 1–4 unit properties where at least 51% of the floor area is residential. Investor-owned or commercial-majority mixed-use properties need portfolio, DSCR or commercial financing.

What is a Phase I environmental report?

A Phase I Environmental Site Assessment reviews a property’s history and records for signs of contamination, such as underground tanks or past industrial use. Most commercial lenders require one. If it finds a potential problem, a Phase II with soil or groundwater testing may be needed before the lender will close.

Related Resources

• SBA 7(a) and 504 Loans
• Bridge Loans in California
• Hard Money Loans in California
• DSCR Loans (1–4 units and small multifamily)
• Fix-and-Flip Loans
• Financing Property in an LLC
• Proposition 13 and Property Taxes

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