Warehouse Purchase Financing
“Warehouse Purchase Financing Challenges With Commercial Mortgage Lenders”
Today we are going to be talking about some of the main challenges that you can have when trying to get a mortgage in place to complete the purchase of a warehouse property.
One of the main challenges is focused on the age, condition, and layout of the building.
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For instance, with older buildings, the layout and infrastructure may not be conducive to how the market would be defined for similar space, which can cause “A” lenders at least to have no interest in lending against these types of assets.
Another challenge with financing existing buildings is placing lending value on improvements that have been made. If the the purchaser is planning to rent or lease out the space, the improvements made for or by the last tenant may have no value to a future tenant or the average tenant in the market place. So the result can be a commercial appraisal that comes in lower than the purchase price which will require a larger equity investment on behalf of the purchaser.
Overall, when you get into warehouse properties that are over 20 years in age, it can be difficult to get these financed through “A” commercial lenders.
The second most common challenge I see when warehouse financing is related to the tenancy of the building.
Lenders can be very interested in the financial profile of each tenant as well as the manner in which they are utilizing the rented or leases space.
Tenant concerns are partially related to cash flow and partially related to security.
From a cash flow point of view, stronger tenants that have lease terms in place for at least as long as the lending term contemplated will have a greater chance to help attract an “A” lender than a warehouse that does not.
From a security point of view, all “A” lenders today require environmental audits to make sure all financed properties are being kept up to the standard of the day and even if the seller or purchaser can provide a clean environmental report at the time of purchase, the tenant usage of the property could still cause a lender not to issue a commitment to finance which could result in financing needing to come from sub prime commercial and private mortgage lenders.
The third major challenge I see is the commercial appraisal that is going to be used by the lender to establish the size of a potential mortgage.
As mentioned earlier, a warehouse facility may have functionality and utility in it that the average tenant does not have any use in. So if you are acquiring a property where there is going to be tenant turnover, or could be tenant turnover in the future, keep in mind that the valuation of the complete package of real estate, improvements, and fixtures you are trying to acquire may be discounted through the lending process which will reduce the amount of financing available to you.
If you are looking to purchase a warehouse property and want to better understand your financing options, I suggest that you give me a call so we can go through your financing needs together and discuss different commercial mortgage strategies that can meet your requirements.
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