Financing Commercial Real EstatePosted:Jun 19th, 2012 9:32 am
By Jim Laskowski, CFO (South Bend, IN)
The world of Real Estate Financing is like the recent performance of IU Basketball: stagnant. For the past few years, financing slowed as banks and Life Companies scaled way back. In 2012, like the Hoosiers, the lenders are back in the game and looking to lend. Annually, I attend the Mortgage Bankers Convention. The convention is held early in the calendar year (Super Bowl weekend), and the word this year was “Life Companies have funds to lend and they are looking for deals.” The underwriting terms are different in 2012, but the availability of debt is there for the right project.
What is meant by the “Right Project?” My interpretation of those key words is:
- Right Location
- Right Asset Class
- Right Loan to Value
- Right Tenant Credit
- Right Sponsorship
Today, lenders want developers to have:
- Signed leases in place (no speculative building)
- 30-40% equity (Skin in the Game)
- Location in a first or at least second tier city, preferably on either coast or the DC area
Today, Lenders do not want:
- Land Development
- 100% Speculative Projects
Since most of our projects do not meet the top tier city level and we live in the middle of the country, we have closed most of our financing/refinancing with local and regional banks. Fortunately, Holladay has a solid history and reputation with area banks. Most recently we closed two loans at rates under 4%. For people refinancing their homes for the 2nd or 3rd time, you probably think this is no big deal. You may even think the rate is a bit high. Well, in the Commercial Real Estate Financing world, rates under 4% are unheard of and have not been available in my 25+ years of working with banks.
In 2012-2013, the IU Basketball Hoosiers are working hard to regain the Era of IU Basketball Dominance (Pre-Pre-Season rated number one!). Likewise, we at Holladay will be diligently working to take advantage of this favorable rate environment. Until next time…GO IU! And GO Holladay!