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Updated over 9 years ago on . Most recent reply

Comm'l Office Bldg Under Contract-Too small for nonrecourse loan?
I have a commercial office building under contract. It is in downtown of my home town. It is a shell and will require a remodel. Our downtown is a thriving and growing place. I am partnering with a long time friend and contractor and our Architect firm to purchase the property. All 3 of us currently rent office space in downtown of which we would office in this building. The building is 2 stories with about 6500 gross sf. We would occupy about 75% of the building. We will identify the tenants for the remaining 25% in our feasibility period (90 days). Here are the numbers:
Purchase: $250,000
Soft Costs, Construction, Contingency & Holding Cost: $475,000
All in cost: $725,000
Equity: $181,250 (25%)
Loan: $543,750 (75%)
Returns:
Lease Type | NNN | Full Service |
Cash Requirement | $181,250 | 181,250 |
CAP | 10.8% | 10.6% |
Cash on Cash Returns | 20.8% | 20.0% |
ROI | 29.6% | 28.9% |
I attached the operating numbers/assumptions if you want more detail as well as a potential layout (or at least I think I did).
Question: What are my loan options?
Because it is construction will it have to go through a portfolio lender? Is it too small for a non-recource commercial loan? Is there a non-recourse type loan available for for construction or only stabilized? Does it have to season for a certain amount of time before it can be taken out by a commercial mortgage loan? If so, typically how long? I would almost rather poke my eyes out than have to go through an SBA loan, but is this a candidate for that type of loan?
Thanks
Most Popular Reply

I finance these types of projects and from my perspective I do think this transaction is too small and the LTV is not strong enough for a non-recourse loan especially with a construction component.
One of the strengths is that you will be occupying a majority of the space so the project will be considered owner-occupied. Is you business an existing business or a start-up? If you are an existing business then financing should not be very difficult. As for not wanting to secure an SBA loan, I am not sure of your prior experience with SBA lending but I have financed several similar projects through the SBA programs and the process is not complicated at all. As a matter of fact the SBA program recently had a record year.
Best of luck!
Dan