Financing Vacant Commercial Property
“Here Are Some Basic Parameters For Financing Vacant Commercial Property”
When we are talking about financing bare land or vacant land that is zoned commercial, there are a few things to keep in mind as the property owner.
First of all, is the land vacant with buildings that are not in use, or a clear and bare piece of property.
Second, are there services on the property or up to the property line? If there are no services adjacent to the property, where would they need to be accessed from and what would be the cost of getting them to the site?
Third, what has been the historical usage of the property over time and has there been any de-comissionings from past activities as well as environmental assessment reports?
Fourth, where is the property located. If a bare lot of commercial property is located within a major urban center, developed industrial or commercial park, this will have a considerable impact to lender interest than if its located in an undeveloped commercial park in a rural town.
All of these items speak to the potential resale market for the property which is going to be important for any lending consideration.
Vacant commercial land can be financed through a bank or institutional lender provided that all the above questions provide value added answers that reduce lender risk.
Further, a bank is going to want to see a source of debt repayment from an existing commercial cash flow in order to be able to fund this type of deal.
The weaker the overall profile, the more likely that this will become a private lender type of deal. And if debt servicing is cannot be demonstrated from existing cash flow, then prepaid interest may also be factored into the equation.
From a use of funds point of view, banks and institutional lenders are not big on equity take outs and prefer to see any loan amount invested into the property to further increase the security value.
Private lenders are less concerned about the use of funds if an equity take out for another project is required.
In terms of loan to value, whether we’re talking bank or private, the amount of financing you can expect to be able to secure on vacant commercial property is between 40% and 60% and 50% being the average.
Higher loan to value amounts would only likely be considered if the properly was on the verge of being developed or was sitting right on the edge of an active development area.
With respect to loan to value, because the land is vacant, it can be difficult to determine fair market value and in many cases a private lender will default back to what the land was purchased for as a base to lend from which can be considerably different from a newly completed appraisal.
Personal covenants can also be important as property lenders will want to get as much security as they can on any bare land lending scenario.
If you have a piece of vacant commercial property that you’d like to finance, I suggest that you give me a call so we can go over your situation together and discuss different options that may be available to you in the market place.
About the Author Joe Walsh
I'm a Toronto Mortgage Broker that arranges mortgage solutions on residential and commercial real estate property. With over 30 years of mortgage financing experience, I'm able to quickly assess your financing requirements and provide relevant solutions for your immediate consideration. Joe Walsh Google+ YouTube Channel