|
|
|
Show Me The (Commercial & Industrial) Money
Commercial real-estate financing is out there.
Sometimes you just have to get creative to find it
|
Business New Haven
4/16/2001
By: Susan Cornell
|
The U.S. commercial real estate market exceeds $4 trillion in volume. Properties that are financed include office buildings, industrial facilities, apartment complexes, townhouse developments, residential subdivisions, strip malls and shopping centers, hotels and motels, mobile-home parks, nursing homes, medical buildings, golf courses, mixed-use properties, restaurants and more. But how does one tap into the $4 trillion available in the lending community to finance business expansion?
Observes Realtor Kristin Geenty of the Geenty Group: “In greater New Haven, many of the investors and companies who purchase real estate already have banking or financing relationships. These are with typical lending institutions. In our area, large bank chains like Citizens, People's or First Union make these loans and mortgages, but some smaller banks like Guilford Savings and Milford Savings also will finance smaller transactions of $2 million to $3 million.
“In these cases,” Geenty explains, “most of these loans are full-recourse to the borrowers [and, in the case of partnerships, to the partners jointly and severally, so if two of three partners go bankrupt the third partner is responsible for the loan in its entirety]. Sometimes, investors with a good track record can get a limited-recourse loan of about 50 percent in rare cases, maybe 15- to 20-percent recourse.”
Adds Geenty: “Wall Street also makes loans - but they make loans on fully leased or occupied buildings. In this case the loans can be non-recourse, which is what investors and developers look for. Basically, these loans are based in bonds that the lender sells to investors. Because these bonds are sold for a specific time period, Wall Street loans cannot be prepaid.
“This can cause a problem in a case where an investor gets a Wall Street loan for 15 years and if, after ten years, the building owner wants to sell, then the buyer would have to pay cash to the loan for the remaining five years because the loan can't be retired.”
At the state level, financing takes place through both U.S. Small Business Administration (SBA) loan-guarantee programs (administered at the state level) and a mechanism called Tax Free Industrial Revenue Bond Financing (which is seldom used these days, but was during the Grasso and Dempsey administrations). The bond financing is, again, based on bonds sold to investors backed by the full faith of the state of Connecticut and can have big upfront costs (as much as $50,000 to $60,000) based on fees, etc. so they make little sense for small loans, notes Geenty.
SBA loans, Geenty says, may be “available for small investments - less then $1 million - but can take a long time, six or eight months in the past, to receive the funds.” Geenty adds that this time frame has been abbreviated recently.
Finally, notes Geenty, “You'll also hear a lot about 1031 exchanges. This is not financing, but a way of selling real estate and rolling the capital gains into another property, so that the income from the sale won't be taxed as gains.”
People's Commercial Real Estate Finance experts offer an array of financing programs including fixed or variable interest rates with tailored amortization schedules. People's provides financing for all investment property types at all financing levels, People's officials say.
Financing is also available for owner-occupied properties when companies are looking to acquire facilities or to expand. This type of financing is available on either a conventional basis or through the SBA 504 Loan Program (www.sbaonline.sba.gov/financing/cert.html).
People's commercial mortgage programs includes construction loans, interim loans and permanent loans.
Construction loans are short-term loans for financing the renovation of an existing property or for new construction. They are written typically for a term of up to three years, with advances being made in periodic intervals as work progresses.
Interim loans provide financing to bridge the gap between when a project commences to the closing of a permanent loan, usually in the form of a construction loan or development loan. Permanent loans are long-term amortizing loans based on the net cash flow generated by the property.
New Haven Savings Bank, New Haven's only remaining hometown bank, is among the leading commercial real-estate lenders in south-central Connecticut. The bank's credit options include:
- Commercial mortgages (permanent and construction/permanent loans to help acquire, build, renovate or expand commercial property. Repayment is made over terms and authorization schedules of up to 25 years and adjustable rates tied to the one-, three-, five- or ten-year comparable U.S. Treasury securities);
- Commercial construction line of credit for land development and the construction of residential subdivisions, housing complexes and other types of commercial buildings;
- And performance bond/letter of credit, a lending arrangement specifically designed for builders and real estate developers.
The SBA Loan Program, also known as the 504 Certified Development Co. (CDC) program, “provides growing businesses with long-term, fixed-rate financing for major fixed assets such as land and buildings,” according to the SBA. A certified development company is defined as “a nonprofit corporation set up to contribute to the economic development of its community or region. CDCs work with the SBA and private-sector lenders to provide financing to small businesses. There are about 290 CDCs nationwide. Each CDC covers a specific area.”
Here's how the SBA program works: “A 504 project includes a loan secured with a senior lien from a private-sector lender covering up to 50 percent of the project cost, a loan secured with a junior lien from the CDC (a 100-percent SBA-guaranteed debenture) covering up to 40 percent of the cost, and a contribution of at least ten percent equity from the small business being helped,” the SBA explains.
The maximum SBA debenture generally is $750,000 (up to $1 million in special cases). The program is designed to enable small businesses to create and retain jobs; the CDC's portfolio must create or retain one job for every $35,000 provided by the SBA.
Funds may be used for fixed-asset projects such as: land purchase and improvements, including existing buildings, street improvements, grading, parking lots and landscaping and utilities; construction of new facilities, or renovating, modernizing or converting existing facilities; or purchasing long-term machinery and equipment.
Additional information is available at www.sbaonline.sba.gov/financing/cert.html.
The state's own lending arm, the Connecticut Development Authority (CDA) makes direct loans up to $5 million. Manufacturing, high technology, telecommunications, information services, financial services and other types of businesses are considered eligible. (CDA loan officers at the Connecticut Development Authority can be reached at 860-258-7800 or www.state.ct.us/cda. They can provide considerable information on products, partners, and guidelines.)
The Connecticut Community Investment Corp. (CTCIC), a private non-profit corporation providing economic-development financing to qualified small businesses statewide, also provides businesses a source of financing. CTCIC promotes commercial and industrial development by assisting the expansion of existing industry, local entrepreneurship and commerce through the rendering of technical, educational, consulting and financial assistance.
CTCIC has a number of loans available including the SBA 504 loan program. Based in New Haven (it was once known as the New Haven Community Investment Corp.), CTCIC was the first SB503 certified development company in Connecticut (SB 503 is now known as SB 504).
CTCIC has established a direct loan revolving loan fund to provide gap financing in partnership with local banks to fully fund deserving projects in the New Haven area.
Additionally, CTCIC has expanded and formalized its business consulting services. It offers a variety of loan products and business consulting services to small businesses throughout the state. CTCIC's web address is www.ctcic.org.
Another source is Oinke.com, which provides commercial financing solutions over the Internet. Oinke's live auction model, born just over a year ago, permits business borrowers to take their loan needs to auction and reach a pool of licensed lenders who bid competitively to finance business and commercial real estate loans.
“Oinke.com literally takes these business loans to the open marketplace via the Net,” says Thomas Markel, Oinke.com's chairman and CEO. “The power of our proprietary online auction model brings borrowers and lenders together, in just a few keystrokes, to negotiate business loan rates and terms that meet each other's mutual needs.”
Oinke;s transaction volume auctioned to date is $624,138,256, the company says. Additional information can be found at www.oinke.com.
Locating financing even in the tightest credit market is possible; lenders are always out there somewhere. The trick is knowing who has the money to lend. Sources may be Wall Street investors, SBA loan programs, pension funds, banks or even overseas companies. A source may even be private households as, in some cases, wealthy families have their own family trust that may provide funds.
A commercial Realtor can help one to look for mortgage money: Financing may be his or her client's most difficult piece of the puzzle to solve.
|
Go FirstGo PreviousGo
NextGo LastGo
to Index
|
|
