Why does a small multifamily loan get sized to the lesser of a fixed amount or a loan-to-value cap?

Sizing to the lesser of a stated dollar amount or a percentage of value protects the lender if the appraisal comes in lower than expected, since the loan automatically caps at whichever threshold is more conservative. This refinance was sized to $1,675,000 or 75% loan-to-value, whichever was lower.

What is the difference between Subject Debt Service Coverage and Global Debt Service Coverage?

Subject DSCR measures only the income and debt of the property being financed, while Global DSCR looks at the borrower's and guarantor's combined income and debt across all their holdings, giving the lender a fuller picture of repayment capacity. This loan required a minimum 1.25x ratio on both tests.

How does a 3-year fixed rate followed by a CMT-indexed reset work?

After an initial fixed-rate period, some bank loans reset to a floating rate tied to the Constant Maturity Treasury index plus a margin, often subject to a floor that limits how low the rate can go even if the index falls. This loan fixed at 6.5% for 3 years, then reset to the 3-year CMT plus 250 basis points, with a 6.00% floor for years 4 through 6.

Why would a bank require an operating account to be opened before funding a small multifamily loan?

Requiring the borrower to open an operating account gives the bank a deposit relationship alongside the loan, supporting cross-sell and giving the bank visibility into the borrower's cash flow. This loan required an operating account to be opened as a condition prior to disbursement.

Case Study: $1.675M Small Multifamily Refinance in Los Angeles, CA

Deal at a Glance

Loan Amount	$1,675,000, or 75% LTV, whichever is lower
Property	5-unit multifamily property
Location	Los Angeles, California (Boyle Heights area)
Transaction	Refinance
Lender	a community bank
Rate	6.5% fixed for 3 years, then 3-year CMT + 250 bps (6.00% floor) for years 4-6
Maturity / Amortization	6 years / 30 years
Interest-Only Period	24 months, then principal and interest
Minimum DSCR	1.25x Subject and 1.25x Global
Prepayment Penalty	3%/2%/1%, years 1-3
Loan Fee	0.25%, plus $1,000 doc fee and $500 packaging fee
Good Faith Deposit	$8,000
Closed	Q3 2024

The Deal That Walked in the Door

We are Commercial Lending Solutions, a commercial mortgage brokerage based in Los Angeles, and this deal brought us a 5-unit multifamily property in the Boyle Heights area of Los Angeles that needed a refinance sized against both a stated loan amount and a loan-to-value cap. Small multifamily assets like this one often get overlooked by lenders chasing larger deals, and finding a bank willing to underwrite this size property on competitive terms was the goal from the outset.

Structuring a hybrid fixed-to-adjustable rate with a meaningful interest-only runway on a 5-unit property meant demonstrating both the property's operating history and the guarantor's global financial picture clearly enough for the bank to move without excessive back-and-forth.

Commercial Lending Solutions specializes in permanent loans and DSCR-based refinancing for small multifamily property owners across Los Angeles, CA and the surrounding Southern California market.

What Made It Hard

Sizing to the lesser of two thresholds. With the loan capped at $1,675,000 or 75% loan-to-value, whichever was lower, the appraisal outcome carried real weight in determining final proceeds, adding uncertainty until the third-party report came back.
Meeting dual DSCR tests. The bank required both a minimum 1.25x Subject debt service coverage ratio on the property itself and a separate 1.25x Global debt service coverage ratio across the guarantor's full financial picture, meaning the underwriting had to hold up on two independent measures.
Pre-disbursement conditions beyond the loan itself. Requirements including opening an operating account with the bank, achieving a market-stabilized debt service coverage per the appraisal, and satisfactory review of the lease agreement all had to clear before funding, adding steps beyond a standard underwrite.

How We Ran the Process

Trevor Damyan, a California-licensed real estate broker (CA DRE #02244836), placed the refinance with a community bank, with the signed letter of interest dated July 31, 2024:

$1,675,000, or 75% loan-to-value, whichever was lower, secured by a first deed of trust on the 5-unit property
6.5% fixed for the first 3 years, then resetting to the 3-year Constant Maturity Treasury rate plus a 250-basis-point margin, subject to a 6.00% floor, for years 4 through 6
A 6-year maturity with a 30-year amortization schedule, with interest-only payments for the first 24 months followed by principal and interest for the remainder of the term
A minimum 1.25x Subject debt service coverage ratio and a minimum 1.25x Global debt service coverage ratio, both tested at underwriting
A declining prepayment penalty of 3% in year one, 2% in year two, and 1% in year three
A 0.25% loan fee, alongside a $1,000 documentation fee and a $500 packaging fee
An $8,000 Good Faith Deposit, applied to third-party and processing costs upon acceptance of the letter of interest

The refinance closed with the pre-disbursement conditions satisfied, giving the borrower a competitive hybrid-rate structure and a two-year interest-only runway on their small multifamily holding.

"A 5-unit property gets ignored by a lot of lenders chasing bigger deals. Presenting the operating history and the guarantor's global picture together up front is what got a bank to actually compete for it."
, Trevor Damyan, Commercial Lending Solutions

Why We Won This One

Getting a bank to compete for a 5-unit refinance, rather than treating it as too small to prioritize, came down to presenting the property's operating history and the guarantor's global financial picture together from the start. Clearing both the Subject and Global DSCR tests with a clean, well-documented package kept the file moving through underwriting without repeated requests for additional support.

Satisfying the pre-disbursement conditions, including the new operating account and lease review, promptly once the letter of interest was signed kept the refinance on schedule to close rather than stalling on administrative follow-up.

Is This Structure Right for Your Deal?

If you own a small multifamily property and want a lender who will compete for the deal rather than treat it as an afterthought, we can help. We arrange permanent loans and owner-occupied commercial loans from a network of more than 1,000 capital sources.

Apply for financing or call us at 310.708.0690 to talk through your refinance.

Trevor Damyan

Commercial Mortgage Broker, Commercial Lending Solutions | CA DRE 02244836

Trevor Damyan is a commercial mortgage broker at Commercial Lending Solutions with a background in structured finance at CBRE and Marcus and Millichap Capital Corporation. He specializes in bridge loans, construction financing, SBA programs, DSCR loans, and complex capital structures for investors and developers across all 50 states.

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