All Forum Posts by: Ken Jernigan

@Ronald Rohde SBA won't do residential or mixed use (unless incidental to operation of business).

SBA loans have to be fully secured. They'll want a first lien on the real estate. Is the seller willing to subordinate to the SBA loan?

Small strip centers without a grocery anchor will face incredible challenges this year and next. Most of the businesses that occupy these centers are customer facing and have less than one month cash on hand. Independent and franchise restaurants, nail salons, spas all will see their numbers fall. This will back up into banks, so expect to see short sales and foreclosures. Opportunities will be out there but only for the liquid. Money will be cheap for some time to come, but lenders will be afraid to put it out.

@Christopher Brown Third party lenders don't like swaps in 504's because SBA's lender agreement requires all swap costs, including termination, subordinate to the CDC loan. They don't have a straight shot at the collateral for swap break costs. Community banks active in this space lack swap capability as well.

How lenders fund should not be relevant. Rates, prepayment, term are all negotiating points subject to the current market. Swap rates are sometimes used as a base rate, mostly for bridge lenders and swap agreements as a basis for calculating prepayment penalties. SBA requires any loan with a floor also have a cap.

@Mitchell R. You can apply for an EIDL on the basis of your Schedule C and a PPP on the basis of your 1099.

@Mitchell R. Do you get a 1099 for your income or do you issue 1099's? If you issue 1099's you can't apply for PPP since the contractor can do that. If you file a Schedule C then you can apply for PPP as a sole prop. From what I hear most if not all the new authorization will be spoken for by applications already in the system when the first round ran out of money. 

@Jeff D. I'm dealing with a few investors now that are backing out of deals. It takes a few months for the business effects to work their way though the economy, but I don't think there's any doubt customer facing businesses will get whacked pretty seriously. Most of these are sole props with very little in cash reserves and I don't think the government is capable of mounting a meaningful rescue effort for them. I saw the same thing in 2008.

This will back up quite quickly into smaller strip centers that are not grocery-anchored. It will create lots of short sales and foreclosures. Banking consolidation will accelerate and portfolios will get dumped. Now is the time to identify likely properties, not the time to make offers. Asset values will come down. Start making your list.

Some private lenders are starting to get into this. Looks like the deals are structured like a business development co loan.

https://www.americanbanker.com/articles/private-credit-bets-big-on-cannabis-companies-as-banks-pass

Commercial appraisers normally complete two out of three valuation methods: market, income or cost. They will then reconcile the two. Most common are market and income. With market they will look for comparable properties and make adjustments based on the condition of yours. Income will look at NOI and assign a cap rate based on similar sales. Not all appraisers are familiar with self storage, though.

If you're thinking expansion or improvement of the property, some lenders, notable SBA lenders, will get an "as complete" appraisal and lend against that, or cost, whichever is lower. You can include the cost of improvements. What some developers do is get a bridge loan to stabilization and do a cash out re fi when leased up.

You also should look into previous uses of the site to make sure no environmental issues exist.

@Daniel Lioz Not sure I follow your structure here. 504 gives you 90% against appraised value if you are an existing business (2 years operation), otherwise for SS it's 85%. But I'll assume your acquisition will come under an existing 2-year old entity. The Green Loan doesn't do 100%, but the standard advance rates. It doesn't make a lot of sense to do only $50K in equipment with it since the chief benefit is to increase the SBA lending limit from $5 million to $16.5 million. Unless you're doing a lot of big projects, this doesn't get you anything. And there is an extra burden of documenting energy savings or production with Green Loans. Same thing with equipment loans--standard advance rates. Term for equipment loans is 10 years or useful life of equipment. I doubt you could get a useful life rep on solar or containers more than 10 years.

If you just did the solar, it's likely it could be rolled into the real estate loan term--25 years. 

If you slammed everything up into one 504 loan, total project cost would be $1,150K plus soft costs. Third party lender would do 50% or $575K, SBA 40% or $460K, and you'd come up with cash equity of 10% or $115K. SBA or any lender for that matter will fund based on the lower of cost or appraisal. SBA fees are roughly 2.5% of SBA amount or $11.5K, plus any other costs, such as appraisal, environmental, attorney. You can add these fees to the loan amount, so you can make the adjustments as necessary. None of this includes third party lender fees.

If you want to capitalize on increased value based on appraisal, then your strategy should be a bridge facility to be taken out on stabilization. You could then consider SBA, or maybe CMBS if you have the track record. CMBS lenders don't particularly care what you do with cash out proceeds.