The process of getting an industrial mortgage for a piece of real estate zoned and used for industrial purposes will continue to be faced with more and more challenges as environmental laws become more stringent and lenders become more concerned about their long term portfolio risk.
One of the main concerns facing owners of industrial properties with respect to commercial mortgages is a shrinking pool of bank and institutional lenders that will even consider many different types of industrial properties. And for those lenders that are interested in financing industrial buildings and real estate, the requirements for financing, on average, are increasing, while the amount of leverage that lenders are prepared to extend is decreasing.
More and more industrial properties that require mortgage financing are turning to private lenders in order to try and secure private mortgage financing. But even this is problematic in that for private money loans to work over the longer term, you have to have private lenders that are prepared to offer longer lending periods than the typical one or two year programs on the market today.
And even with private lenders, things such as environmental laws can provide a significant barrier to lending that were not as prevalent as in the past. In the summer of 2011, the standard of the day with respect to environmental liability laws is scheduled to go up, creating still more difficultly with financing properties that have had or still have an environmentally sensitive use.
In order to get proper financing, or any financing on industrial real estate, regardless if you’re talking about acquisition, mortgage refinancing, or a debt consolidation loan, here are some things to keep in mind.
First, allow yourself plenty of time to work through the process of locating and securing the best available financing options for a given property. With bank and institutional lenders, its going to take at least 60 days to get to positive answer with respect to a financing application and in many cases the time required is much longer.
Second, make sure that the property is in the best possible position for financing. Have any historical environmental issues been properly addressed? Is the property survey up to date and in order? Is the property in a good state of repair and appearance? Are financial statements up to date to support debt service? Is the balance sheet and cash flow of the business capable of taking on more debt or maintaining the debt that already exists.
Third, locate an experienced Toronto mortgage broker that placed industrial mortgages and utilize their expertise to not only locate the best available options, but to also assist you in properly applying for financing and closing the deal.
To get mortgage financing for An industrial use building and/or property, you’re going to have to make sure you have a number of things in order to get the best deal or get financed at all.
The first thing that every industrial mortgage lender wants to know about the subject property is the historical use that’s taken place and if there is any environmental liability.
Even if the building and/or property itself did not house a use that would be considered environmentally unfriendly, the neighboring business area history will be important to as air, water, and soil can transfer pollutants from one location to another over time.
The best way to prepare for this requirement is to proactively get an environmental assessment completed. This can require multiple phases of work, depending on the property use and what may get detected in the initial site visit.
To improve you chances of getting a clean report and minimizing the overall cost of assessment and testing, make sure that you clean up the building and property and keep it clean. Garage and debris that sits around can create the perception that contamination may exist due to the manner in which the property is being maintained.
Building on the last point, another key aspect of industrial mortgage financing is the current condition of the real estate and the state of repair. The property is only going to be valuable as security to a mortgage lender if the lender views it to have a valid resale market, based on the conditions its in. The more work required, the less likely you’re going to be able to attract lender interest and the interest you do attract will be for lower loan to value mortgage amounts and higher interest rates.
The third key to industrial mortgage financing is demonstrating strong repayment either through the revenues received from tenants or from your own business if you are occupying the building yourself. The stronger the repayment is, the more likely you will get lender’s interested in the mortgage opportunity.
If you have an industrial property that you’re looking to purchase or refinance, give me a call so I can quickly assess your situation and provide relevant industrial mortgage financing options for your consideration.
The term heavy would relate to activities like welding or some form of chemical processing where the work being performed has some impact on the building or property. On the flip side, light manufacturing could be performed in a commercially financed building where the nature of the activity does not impact the property and structure in any manner.
With Industrial buildings, many of the challenges related to financing can stem from the heavy usage they are exposed to.
If there are higher levels of wear and tear, staining from air borne materials, or staining from liquid based materials, there can be an impact on the resale value and speed of resale, causing mortgage lenders to be less interested in these properties.
Also, if there is a toxic or corrosive type activity, the building is going to looked at more closely with respect to its containment systems and a higher degree of environmental testing is going to be involved.
Some buildings were also built for rather unique purposes, so if they are ever put up for sale, it may be difficult to find alternative uses for the building or the renovation costs to make it functional for another type of use may be too high to justify acquisition.
For some industrial mortgage applications and locations, institutional lenders will either have no interest at all in the financing opportunity, or will only provide lower levels of leverage and higher interest rates.
As a result, private mortgages can end up being the only option for certain buildings which will result in slightly higher rates than institutional lenders so the underlying business or commercial tenants will need to have sufficient margins to cover off the higher cost of financing.
The key points here are that industrial mortgage financing sources are typically harder to locate and secure than other forms of commercial financing and the time required to complete the financing process tends to run longer than virtually any other type of mortgage financing.
These are situations where a commercial mortgage broker can be invaluable to you both in terms of finding relevant sources of financing, but also helping you meet all the lender conditions and getting the deal closed.
If you required assistance with industrial mortgage financing, please give me a call and we’ll go through your options together to see if we can find a workable solution that meets your needs.