Industrial property financing is typically going to take some time to get into place, but when you’re taking about older properties or industrial real estate under $500,000 in value, the process of locating and securing financing can be more difficult than you had anticipated.
This is because main stream banks and other institutional lenders do not have much if any interest in certain types of industrial properties including those described above.
The industrial mortgage lending business from a bank or institutional lender is all about cash flow, and if the cash flow is a bit thin then the security is going to have to be top notch otherwise they are likely going to pass on the deal. Even in situations where the mortgage amount is less than $500,000 on an older property with good cash flow, it could still be difficult finding a bank or institutional lender that is prepared to offer financing and fund the deal.
The segment of the commercial and industrial mortgage lending markets that is serviced by banks and other institutional lenders places more value on cash flow than property value when making lending decisions. And any industrial property that is viewed to not be easily marketable or has the potential to be on the open market for an extended period of time if put up for sale, does not attract much interest from institutional lenders.
Add to this any property use that has any potential environmental liability and the chances of getting a bank mortgage are going to drop even further.
The other challenge with getting your industrial property financing is place is related to timing. The lower risk lenders tend to take a minimum of 60 to 90 days to assess, approve, and fund an industrial mortgage application. If you don’t have enough time to allow the process to complete, or the process is going to take even longer for some reason, then its going to be difficult to complete a purchase, refinance a mortgage, consolidate debt, and so on.
This where private mortgage lending comes in to serve as an option.
Most private mortgage lenders that will finance industrial properties are looking at mortgages under $2.0M with many of them having even lower mortgage maximums.
So for the smaller mortgage requests, private lending can become the best option available at times.
And even though a private lender is an equity lender for the most part, they are still going to be concerned about market value and marketability. As a result, private lenders will be very interested in the borrower’s plan to repay the mortgage at the end of the mortgage term, and if the plan is workable or viable, then there is a good chance mortgage financing can be arranged privately when there were no institutional takers available for the same deal.
In situations where timing is an issue, a private lender is capable of turning around an application and funding a deal in 30 days or less which can make a private industrial mortgage the best short term solution to complete a transaction or meet a deadline, and provide additional time for a longer term financing facility to be arranged if required.
If you’re looking for private mortgage financing for an industrial property, I suggest that you give me a call so I can quickly go over your requirements and provide private industrial mortgage options for your consideration.
A lot of this has to do with the definitions people have for commercial properties versus industrial properties.
In most cases, industrial has to do with a combination of size and use. The larger a building, the more likely its going to be classified as industrial regardless of how its utilized.
Therefore, even office buildings can be considered industrial in many instances.
The actual distinction for any one property is based on the way its zoned for use with industrial zoning tending to have a broader usability guidelines than commercial, but that’s going to depend on the jurisdiction of the property.
The point here is that industrial properties are not limited to large buildings that house manufacturing or processing activities.
In many cases, private mortgage financing can not only be a good fit, but the only fit for properties that fall under heavy industrial use. At the same time, all other industrial properties can derive financing from private mortgage sources depending on the requirements and timing of financing.
As I’ve described in other articles, situations that require quick closing or extended periods of time to arrange institutional financing can turn to private mortgages as a short term financing option.
Industrial construction loans are many times provided by private mortgage lenders for all sorts of industrially zoned building projects.
There will also tend to be more private lending options available for requirements under $2.0 M due to the fact that larger amounts are only provided by a small percentage private lenders so you can end up with less competition and less availability for certain projects in certain areas.
For well kept industrial buildings that are fairly new and are part of an active market, private mortgage rates can rival institutional rates in some cases and when you factor in all the additional costs to qualify and service an institutional mortgage, an industrial mortgage through a private lender may provide a superior option for a period of time.
The key point here is that private lenders as a whole will consider financing a wide spectrum of industrial properties with the rates and terms offered being relevant to the risks associated with the property and the competition among private lenders to fund any given deal.
If you require an industrial mortgage and want to know more about your private mortgage options, I suggest that you give me a call and we can go over your requirements together.