Almost. In addition to the $500,000 you would have assumption fees and closing costs, so you would need approximately another $150,000 - $200,000. However, that does not eliminate all of the "hassle" of applying for a loan. Most lenders will require you to qualify for the assumption very much like qualifying for a new loan. The primary benefits of assuming existing loans are: (1) you may be able to get a more favorable loan term than you would get on a new loan; and, (2) as in the case you described, you can get a higher loan to value ratio than on a new loan.
The bigger question to ask is: with $3.5 Million loan on a $4 Million property, is there sufficient cash flow to cover the debt? Since the value of commercial properties is based on income, there is a reason the total value has decreased (I assume it has decreased because I can't imaging any lender allowing an 88% LTV) - that would be that the income has decreased. Look closely at the income/expenses before jumping into buying a deal like this.
Jul 15, 2009