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Updated over 9 years ago on . Most recent reply

User Stats

258
Posts
170
Votes
Katie Neason
  • Flipper/Rehabber
  • Bryan, TX
170
Votes |
258
Posts

Comm'l Office Bldg Under Contract-Too small for nonrecourse loan?

Katie Neason
  • Flipper/Rehabber
  • Bryan, TX
Posted

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

User Stats

63
Posts
20
Votes
Dan Wallace
  • Vendor
  • Denver, CO
20
Votes |
63
Posts
Dan Wallace
  • Vendor
  • Denver, CO
Replied

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

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