Rent Real EstateCommercial Financing is Available for the Right Buyer and the Right Property
[Note: To follow is an excerpt of an interview with Stan Hanks from RealSource, whose commercial division specializes in financing multifamily and tenant-in-common deals. To listen to, or download the show archive MP3, go to www.IncomePropertyInvestmentTalk.com/081308.]
Mosca: You can"t open up an Internet site or a newspaper, listen to a radio station, or watch TV and not hear about how hard it is to get commercial financing. Stan what is happening right now with commercial financing?
Hanks: I read an article that said things will turn around in the third quarter of this year and in the same article, the partner who wrote the other part of the article said the turn around will happen at the end of 2009. Suffice it to say that there is much confusion and anxiety in the market. For someone who wants to get a loan on a property that still exists. What used to maybe take 30 days to get may take 60 or 75 days but it can happen and we are able to do that.
Mosca: Are new governmental rules and regulations adding days to the process?
Hanks: That"s part of it. Clearly the sub-prime lending created some real challenges even for lenders who lent funds to only prime borrowers. The impact for those buying commercial properties should be negligible but there is the fact of guilt by association to the sub-prime crisis despite the fact that second quarter defaults in commercial lending have not significantly changed. Nothing near what is happening in the residential market. There is still money to be had because the principles behind commercial lending are still intact. In the heyday, when someone could put down 15 to 20 percent on a property, they could provide one month of historicals and a nice pro forma going forward and they be able to secure a nice five year fixed rate loan with three years of interest only. In comparison, today"s market dictates that the days of lending on pro forma numbers or on anticipated increases in rents or occupancies are gone. On a stabilized project, you should expect to put down at least 25 percent.
Mosca: Are rents more important to today"s lenders than cap rates?
Hanks: Lenders will underwrite at current rents so owners need to get with their property managers and discuss the market, ways to maximize cash flow in the project, maximize rents, aggressive advertising, the need for repairs, all these and other ways to help increase value. The reality is that cap rates are applied to today"s numbers not to a pro forma number, and that is really important. I"m getting brokers, who are about to list a property, send me the financials and ask me about the loan I can get for them. I"m getting involved more on the front end and that is a good thing.
Mosca: What is your golden nugget for today?
Hanks: Anyone that"s having challenges getting lending for an income property should give me a call at 800-929-2150. I can get lending whether someone is buying individually or investing into a tenants in common to protect their 1031 exchange.