Commercial Real Estate Investing From A-Z Loans: The Good, the Bad and the Ugly - Office, Retail, Warehouse (Part 1)
Today we are learning what are the pros and cons of each asset class and their loans. In this post we are covering office, retail, and warehouses. You will also learn some strategies for selling your property, as well as how long you should account for getting a commercial loan. We are interviewing Billy Brown, the Vice President of Business Development for Alternative Capital Solutions.
You can read this interview here: https://montecarlorei.com/commercial-lending-the-good-the-bad-and-the-ugly-office-retail-warehouse-part-1/
Let's go over three or four different types of loan options and the pros and cons of each one of them, it's important to know what the cons are so that all the investors can decide what is best for them and their business plan when they're purchasing a property.
The first one is if you have a bunch of rentals, four, five, six of them, they've Fannie Mae, Freddie Mac lending on them and they're getting a little frustrated with how more difficult is becoming to go get that sixth or seventh one. And they're about to be what we call "Fannie and Freddie out". They may see that the cash flows are good. There's some equity in there that's lazy, and they want to access that. And there's a way to go do that. It's called cross-collateralization. What we then do is we take that into one loan and we can go up to 75% of the appraised value. And if it's big enough, then we can do what's called "non recourse lending". If it's not big enough, then we can go recourse lending.
How many years are there for prepayment penalties, are they for the entirety of the loan?
No, it's not like multifamily, the prepayments are usually limited to the first three or five years. Usually the first two are pretty heavy in the 5% range, and then it drops down significantly after that. So by year three or four, you're down to 1 or 2%.
Office and Retail Loans
This one is one of those asset classes that's under the radar and most people shy away from it, because the lending isn't as great as the multi-family world. And that's because the tenant determines what type of lending you can do, as well as the size of the loan. And the size of the loan matters, a $500,000 loan is actually harder to go get than a $5M loan. That's a little flip on the the idea of starting small and moving up. It's actually easier to get the bigger stuff. On the office, your tenants and the length of the lease will determine what type of loan you can get.
Warehousing Loans
Warehouses are the next best tenant because they typically stick around once they put in their $100,000-$200,000 equipment and they bolt it to the floor. Most of time they don't leave. They'll sign leases and they just keep on staying there because these guys like to work their hands, they're typically not business people so much and they just don't want to move. It's a pain in the rear to go get these things off the ground, bolted, and go find another place, especially warehouses. You can bundle the office, warehouse and retail, in general, in the same bucket as far as your lending options. Because it's all determined by the strength of the tenant. For newer investors, they're going to be a lot more conservative, and have a lower loan to value, versus the NNN larger corporate tenants. If you get a good deal, it's all on the buy. The lending becomes much easier.
Billy Brown
www.billybrown.me
www.altcapsolutions.com
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