Mortgage for a rural commercial property.

[Evan R.]

tl;dr rural, manufactured, commercial building with obscure zoning. what are potential buyers' mortgage options?

I'm a bit of a rookie dealing with a weird mortgage edge case. I've got a residential real estate agent, but she doesn't want to touch this because it's commercial.

Context
I inherited a commercial property, and I'm trying to find the highest and best use for it. I've found a potential commercial tenant, but it's not a done deal. They would take possession in about six months. In case they fall through, I'm considering selling the property.

I'm in a small outlying community in Mohave County, AZ. The closest town is Kingman. Given how small the town is, I'm not going to say the name. I'd also appreciate it if you don't guess. The real estate market is a 'thin market', not a lot of sellers, not a lot of buyers. There are about 1-2 transactions per year here.

The building
The main building on the property is a really nice modular office. Three private offices, a small kitchen, two ADA compliant half baths, and a large hall. Everyone who sees the office is surprised that it's a manufactured building. It's got stucco on the outside and dual pane windows. Inside there is wallpaper, tile floors, a sprinkler system, and fancy molding.

There are a couple of locals that have offered me cash, and those prices are very low. Initially, I thought that I could get the property FHA conforming
by adding a fridge and a shower. Then a buyer is paying less interest, and the property can command a higher price. But I'm discovering some roadblocks around manufactured buildings and zoning.

Assigned Commercial at Manufacturing
Here is a bit of trivia about manufactured buildings. When a house is manufactured, it's assigned to be residential or commercial at birth. Residential buildings can become commercial, but commercial buildings cannot become residential. Such are the rules at the Arizona state level. I am almost certain this building was assigned commercial at manufacturing.

It's not too hard to make the building habitable by adding a shower. The county has a rental registry for landlords. This requires an inspection, which this building would fail. The county levies a $150/day fine for unregistered landlords. From a landlord perspective, it's a massive liability to offer this building, so I'd rather not. But a handy buyer could add a shower themselves.

Zoning
Everyone is familiar with Residential and commercial/industrial zoning. We have a special class, 'A' for general zoning. When the county started doing zoning in 1976, outlying areas were 'A' zoned. 'A' zoning is the most permissive. You can do a fourplex, have a farm, build an airstrip, or have an office building. Very permissive. The lot size minimum is 5 acres, and my 4.5-acre property is technically non-conforming but compliant. I verified this with a level two zoning technician. The current zoning would allow adding a site build or manufactured home to the site, but that's a bit of a slog to get done.

Mortgages
As we know, people tend to buy based on a monthly payment, and lower interest rates mean a higher sale price. This is important because I have a few other properties in town, and I make my own comps. So I'd like to get a higher price, even if I need to pay more for it.

I went to a local bank to ask about a potential buyer getting a confirming mortgage, and they had never heard of 'A' zoning. They said I would need to get the zoning changed before I could get any kind of mortgage. The commercial mortgage broker confirmed the bank has no products for 'A' zoned properties. Changing the zoning would take about three months. Zoning changes happen quarterly, and I already missed the deadline. This would also mean the commercial tenant couldn't rent the building.

Carrying the Note
The town is fated to die, for local political reasons that I don't want to go into. So I'd rather not hold a note for a couple years, have to foreclose, and then have an even thinner market to sell into.

Moving the Building
Given the stucco and tile, it's too heavy to move, so I can't sell the building. The building was manufactured in the late 1990s. County records reveal the office has moved twice, which is kind of the limit of a 'mobile home'. The building needs a new shingle roof, and part of me thinks I should burn the office down. Then I can sell the property as bare land.

What kind of mortgage products would be available for this property that I'm working on?