By Jeff Rauth. Email Here or 248 885-8797. SBA Loan Officer at a Bank That Lends Nationally. 15 Years Commercial Real Estate Experience. Past Commercial Mortgage Broker.
Owners evaluating industrial building loans have solid options. Though this is a broad category and finance programs range widely based on such factors as loan amount, owner occupied or investment, single tenant or multi tenant, etc. In addition, environmental concerns can be a major factor and often slow lenders as the liability for contamination is higher within the industrial sector than others.
Loan To Value – Industrial Building Loans
Loan to values on industrial building refinances can go up to 90%, assuming the borrower’s business occupies 51% on more of the space. These programs are normally government backed. Lower loan to value requirements should be expected for industrial investment properties, normally reduced to 65% – 70%.
Purchase transaction can go up to 90% financing for owner occupants. In addition, some lenders are willing to allow secondary and or seller financing to help structure deals with a combined loan to value of 90% as the normal cap. Investment property purchases, are now reduced to 65% or so.
Debt Service Coverage Ratio – DSCR
Debt Service Coverage Ratio restrictions are now typically set at 1.25 for both investors and owner occupied industrial properties (Though we can go lower on owner occupied requests). Meaning that for every $1.25 of net income (income after taxes, insurance, repairs etc) the property/business produces, the mortgage payment will not exceed $1.00. Said in another way, after all expenses and the mortgage has been paid, the owner needs to net $.25 to qualify. Exceptions can be made with this rule. Some lenders will go down to a 1.1 with compensating factors.
Tenant evaluation is not as important within the industrial properties as with more special purpose properties. Lenders scrutinize the time left on the current lease(s) and other relevant information. Of particular concern on investment industrial property loans is the time remaining on the current lease(s). For example on multiple unit properties, lenders prefer the lease expirations to be staggered and most banks/ lenders want to see at least 5 years left on the current leases. Some traditional banks will not allow the fixed period of the loan to exceed the time left on the lease.
Market value and market rent is very important and will be evaluated and compared to the subject property. Environmental condition of the property will be heavily scrutinized. Phase 1 reports will be required. Age, appearance, location, accessibility, and local market conditions, as well as other factors are considered.
The personal credit worthiness of the borrower will be considered. 680 credit score is normally the minimum for the best finance options. Exceptions can be made on this as well with some conventional lenders considering scores as low as 600 within this category. The overall strength of the property, tenants, DSCR, and LTV can offset concerns on low credit scores. For corporations, business performance and credit rating will be evaluated.