As published in Scotsman Guide's Commercial Edition, July 2008.
Traditionally, commercial mortgage brokers tend to pursue loans in the four food groups: multifamily, office, retail and industrial. These property types are common, easy to understand and relatively easy for most institutional lenders to fund. Meeting simple loan-to-value (LTV) and debt-service-coverage ratios, together with reasonable borrower credit, generally has been enough to obtain loan approval.
The commercial-mortgage-backed-securities market played a large role in this trend. But because of changes in the capital markets, funding for these property types is increasingly difficult to obtain.
Finding a Niche in a Niche ___________________________
If you are pursuing specialty property types as a niche, you would be well-advised to specialize.
Choose one or two particular property types. Learn everything you can about them and which lenders want to work with them.
Remember: All of these properties -- be they nurseries, marinas, RV parks, hospitals, restaurants or churches -- need financing or refinancing at some point. By specializing in one or a few, you can become the go-to broker for these property types.
Most institutional lenders that offer financing are providing it off their balance sheets and carrying the loans as portfolio loans. They're more discriminating.
If owners of basic-food-group properties are facing increasing barriers to loan approval, what about the owners of specialized property types? Actually, they're OK.
There is money available for specialized-property-type funding, and these loans often are worth the effort. Brokers, however, must pursue proven sources of capital and put in the work necessary to achieve the desired funding outcome.
Assuming you have a motivated borrower, finding prospective lenders whose lending criteria meet your client's needs and property type is the first step. Then, it's time to roll up your sleeves and work toward a closing.
First things first
Before considering underwriting, know the particular financing characteristics of each specialty property type.
For example, consider restaurants. They usually design, manufacture and sell a product in the same location. The design comes after deciding which food items will be on the menu. The menu items determine what products will be made on site. Different types of food products require different types of equipment and space configurations needed to produce them. In turn, this determines space allocations for kitchen size and overall space requirements for other planned amenities -- such as having enough seating to attract enough guests to generate a profit.
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