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Commercial Department: From the Editor: July 2008


From the Editor

What struck me about the former Denny's down the street was the door leading to the "Liquor Unit" — plausibly, a diorama of the world's saddest cocktail lounge, replete with smoke stains thicker than cake frosting and drinkers who had little stomach for the Grand Slam.

But shortly after the Denny's' closure, Seattle's Landmarks Preservation Board saw something different. The building's ridiculously sloped roof and whimsical shape were prime examples of Googie architecture — a Freeway Age style most often seen in roadside motels. Even as the neighborhood around it grew to a mixed-use maze, and even as its boarded exterior morphed into a giant canvas for Radiohead and Ron Paul posters, it could be worth saving.

Shortly before Memorial Day, the board backed off. Saving that thing? It'd severely crimp any developer's plans. And as one board member told The Seattle Times: "No lender is going to lend on this project."

It's a refrain many commercial brokers have heard or uttered, especially in recent months. According to Real Capital Analytics, the office, retail, apartment and industrial sectors saw a pronounced decline in investment volume in the first quarter of this year — with retail sales, for example, down from $26 billion in first-quarter 2007 to $6 billion in first-quarter 2008. This comes even as lenders are narrowing their focus to the aforementioned "four food group" properties to minimize risk, often shunning goofy ex-Denny'ses.

On the other hand, most of us have a similar misfit property down the street. And at some point, all will need some kind of financing.

For brokers, finding a home for a borrower turning a funky old chain restaurant into, say, an office-condo complex is difficult but not impossible, as Christopher Hurn of Mercantile Commercial Capital writes in our Lead Article. Knowledge of what lenders seek in terms of loan to value and debt-service-coverage ratios is a good start.

Working with specialty property types also means understanding what makes them special. Restaurants, as Park Hill Lending's John Arno touches on in this edition, must have ample space for seating and food preparation. Churches, which Rob Purnell of Shepherd Capital Partners Inc. discusses (Page 52), carry with them a different kind of borrower — or borrowing "entity."

Finally, it helps to recognize that some lenders actually like working with these types of properties, which Cornerstone Funding Services Inc.'s Craig Grella details here. The trick is in finding them.


Tony Stasiek was an editor at Scotsman Guide. For questions on this article, call (800) 297-6061 or e-mail

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