Lending for Commercial Real Estate in Costa Rica

Most of what gets written about lending here describes a loan against a house. Commercial files — a building with tenants, a warehouse, a project under construction — behave differently enough to deserve their own treatment, and the differences are where a lender either does well or gets caught.

Money that goes out in stages

The first structural difference. A loan against a finished property is advanced in a single sum. A project loan is released against progress, in tranches, as stages are completed and verified.

That works in the lender’s favour more than people realise. Capital is not exposed all at once, and each release is a decision point where a stalled or drifting project can be caught before the whole amount is committed. It also means the loan needs a schedule everyone has agreed to in advance — what has to be finished before each release, and who confirms it.

Value is harder to pin down

A house has comparable sales nearby. A half-built commercial building has none, and its worth depends on assumptions about what it will be when finished.

The conservative approach is to underwrite against what exists today — the land and completed construction as they stand — rather than against the projected value of a finished project. The finished figure matters for the exit; it should not be doing the work in the loan-to-value calculation.

The exit is longer and needs naming

Residential exits are usually short: a sale, a refinance, a residency approval. Commercial exits take longer and come in more varieties — units sold off, the completed building refinanced, a tenant signed and the property valued on its income, or the business itself generating enough to repay.

Each of those has a different timetable, and the loan term has to match the real one rather than the optimistic one. A twelve-month loan against a twenty-month exit is a problem with a date on it.

The extra checks

Commercial files carry paperwork residential ones do not. Permits, and whether the ones in hand cover the work actually planned. The developer or operating entity, its books, its authority to sign, and what else it owns or owes. Existing leases, where a building is tenanted, since they affect both income and what a buyer would pay. And the builder, whose track record decides whether the draw schedule is realistic.

These take longer to verify than a house file, which is one reason commercial closings run longer.

Rates and structure

The same 9% to 16% range applies, with commercial and project files tending toward the middle and upper part of it — not because the borrowers are weaker, but because the valuation is less certain and the exit takes longer. Terms run six months to three years, from $50,000 upward with no ceiling.

Larger files sometimes suit a guarantee trust rather than a straightforward registered mortgage, particularly where several properties or several lenders are involved. The comparison between the two is here.

Who these loans suit

Lenders who are comfortable with a longer horizon and a file that needs reading rather than skimming. They are not a first loan for someone still learning the market, and there is no shame in starting with a finished house on a conservative ratio and moving to project work later.

Who confirms a draw

The mechanics matter, because a draw schedule is only as good as its verification. Each release is tied to defined work being complete, and someone has to confirm it before money moves.

That is usually an inspection or a professional’s certification against the agreed schedule, and the arrangement is settled in the loan documents rather than improvised at the third draw. A schedule that says what has to be finished, who signs off and how long confirmation takes is doing real work; one that says money will be released “as construction progresses” is not.

When a commercial file should be declined

Some patterns are worth naming. Permits that do not cover the work planned, or that are still pending with construction already underway. A valuation that leans on the finished project rather than what stands today. A term shorter than any realistic exit, which converts a good project into a distressed one at maturity.

And the quiet one: a developer whose other projects are consuming the cash flow meant to service this loan. Reviewing the entity is not paperwork for its own sake — it is how that becomes visible before the first draw rather than after the third.

As with everything else here, the borrower pays the lender directly and our work ends at closing — though on staged files most lenders stay in touch with us throughout, and we help where we can.

Article by Glenn Tellier (Founder of CRIE and Grupo Gap)