Strip Mall And Plaza Financing
“Strip Mall And Plaza Mortgage Loan Financing Solutions”
Strip Mall and Retail Plaza financing can come from a number of different lending sources, but regardless of the source, there are going to be some challenges that you’re going to need to address or overcome to get the financing you’re looking for.
While there can be a lot of unique commercial financing challenges to any one deal, here are the four most common challenges we come across with strip mall and plaza financing applications.
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The four most common financing challenges relate to cash flow, tenant profiles and lease terms, vacancies, and building age, condition. and location.
Let’s start with cashflow.
Many times a strip mall location is going to be acquired because of the future profit potential from lowering vacancies, increasing rents, and so on.
But from the lender’s point of view, the cash flow from operations that will be considered for debt servicing is going to be historical in terms of what is reported in the last several years financial statements. So its going to be important to match up the available cash flow to the right financing scenario and lender to get financing in place to complete an application.
When cash flow improves in the future, then other lower cost, higher leverage financing options may be able to be considered, but at the time of purchase, you have to be best positioning the cash flow that is already in place with the most relevant commercial property lending sources.
Similar to cash flow, the existing tenant mix and leasing terms are going to be important to the application assessment of a commercial property financing source.
For instance, if you do not have any well established anchor tenants, or all existing leases or rental terms are all short term in nature, then it can be difficult to either get financing in place from a preferred lender, or get an interest term longer than a couple of years as most lenders want the lease terms to be at least as long as the interest term extended.
In terms of vacancies, you will likely be projecting a certain amount of cash flow from vacant units in the coming year for debt servicing, but business real estate lenders, who will always take conservative approaches, may discount future rents from the vacancies to zero, taking a worst case scenario into account. This again will impact your ability to meet the debt servicing requirements of certain lending groups and institutions.
The final of what I am calling the largest financing challenges is the age of the building, its location, and condition.
Commercial lenders will look at the building both from a security and unit marketability perspective.
From a security point of view, is there an active market for this type of property in the location in which it resides? How long on average does it take for one of these properties to be listed and sold on the market.
With respect to unit marketability, lenders are going to take note of the age of the building relative to other similar properties in the area. Newer developments are likely going to be able to command higher market rents and will have a greater advantage in attracting tenants due to newness/modernization factors. So market area capacity, vacancy, and rents can play a large role in determining who the most suitable lender will be and what they may be prepared to offer to you.
The best way to proactively address these challenges and/or overcome them is to work with an experienced mortgage broker who can quickly assess your situation and requirements and get you working with the most relevant lending sources for your deal as soon as possible.
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