All Forum Posts by: Darryl Dahlen

Welcome to BP Jeff! Lenders these days use the purchase price to set the LTV. The primary reason for this is to make sure you are putting skin the game.

There are programs out there that can drastically reduce your down payment (FHA and USDA are two that come to mind), but I have no idea if you can use them for what you are looking to do.

Hopefully, someone else will post who can give more insight into those programs.

Best of luck though!

The SBA is temporarily allowing refinances using the 504 program. There are, however, a few conditions to meet in order to qualify for a refinance.

Some of the major requirements are:

-The existing loan must be maturing.
-The existing loan is not currently a government backed loan (7a, USDA B&I, HUD, etc). It could be possible to refinance a current 504 loan though.
-The business, and current loan, are at least 2 years old.

There are a few other requirements, but those are the major ones that could stop a loan from qualifying. There can also be no lates in at least the past 12 months, but I would hope that would go without saying.

Rates on a 504 refinances are in the low-mid 6s for the non-bank portion of the loan.

FYI- for those who don't know, a 504 loan is actually two loans. The bank lends up to 50% of the loan amount and any amount above that is funded by a CDC lender who works in conjunction with the SBA.

Jon's right, you "can" get a fixed rate with the SBA, but only if you qualify for a 504 loan. SBA 7a loans are of the adjustable variety, but they do not have a fixed rate option.

Unfortunately, SBA loans are only for O/O properties, so if you don't occupy at least 51% of the space then an SBA loan is out the window, but perhaps a conventional loan would work?

Out of curiosity, when you say office space do you mean an office condo?

I think such claims are often made with little thought to the actual reality of the situation, and if I had to hazard a guess, are most often made by inexperienced people or sleaze buckets looking to earn a quick dollar.

As you well know, there's no such thing as no risk in real estate, and in some cases, making those kinds of outlandish claims can land you in hot water with the SEC.

This is a sector I'm making a concerted effort get into with regards to lending. Now that entities can use the SBA 504 loan for purchases and refinancing industrial properties are a good fit for this loan.

Historically, industrial properties have fallen into two categories, light and heavy,

Light industrial buildings typically have one important leg up on their heavy industrial counterparts, and that is fewer environmental issues. Lenders try to avoid environmental issues for a lot of reasons: less liability, increased marketability, costs associated with cleanups, etc.

LI properties also tend to be more palatable to lenders when it comes to financing since they usually encompass business types a lender can understand. From an ownership perspective, I suspect that also makes them a safer bet. I would rather own a facility where the tenant makes clothing and can market their product to many buyers. That should make them less vulnerable to market changes compared to a company who say makes heavy brake pads. How many buyers can there possibly be for that product?

Heavy industrial buildings don't necessarily have to manufacture tanks or heavy machinery to be considered HI. I believe any business that uses chemicals, metals, gases, etc. could be considered HI. Hypothetically, that could make a company who manufacture parts for a cell phone company a HI business. At first glance, you might not consider a company such as that as HI, but since toxic chemicals are used in the manufacturing process, it would be.

The obvious downside to a HI business/property are the environmental concerns. Another issue that could be considered a downside is if the property is so well-suited to HI that it really can't be anything else without massive capital expenditure to convert it. This is obviously something to consider when looking at a property. Is the property HI because of the past tenants or is it because it has heavy lift machinery, smelting equipment, etc. on site?

There is another type of industrial property that is having success as of late, and that is industrial flex space. This type of property can easily be converted to suit many needs, which makes financing them easier and also makes them more attractive to a wider variety of tenants.

This type of building often has an office space component in addition to space for manufacturing. This allows a business to house their operations and manufacturing under one roof. It also typically allows for the conversion from warehouse to manufacturing fairly easy which further increases the versatility of the property.

If this were a conventional program, buying down the rate could certainly be an option. This, however, is a niche program and is why I suspect that option isn't possible.

Bryan, I called my banker (yes, he answers the phone even after work hours). He said no buy downs are allowed, but he stated he has some wiggle room on the longer term rates.

There's no real magic number regarding how many units the lender likes. I've had deals with as little as 5-units and one with 12-units.

This particular loan relies heavily on the credit and borrower's financial strength as a driving force for the loan. Not saying you have to earn a lot of money to qualify, but a 700+ credit score with weak tax returns is going to be problematic.

The property certainly plays a role as well and to debt service with a DSCR of at least 1.2. To verify the numbers, the lender wants to see 2 years of tax returns to back the numbers. They will also require a YTD financial statement.

As far as seconds go, the lender will allow them. I'm working on one now where the borrower only has 20% to put down, but the seller is willing to hold a second for the other 10% needed.

As long as the CLTV still debt services at 1.2 or better, it works, and as of yet, I have not seen a seller second affect the lender's rate.

I plan on starting some CRE based discussions over the next few days to try and get some momentum going.

I think it will be easier to invite new members to contribute to a specific topic versus inviting them and stare at a blank page.

That's actually a good question. I haven't had anyone ask that before, but it's no problem to find out. I'll make a call tomorrow and post the answer here.