Commercial Property Financing

Discussion in 'Commercial Property' started by Student, 15th Jul, 2018.

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  1. Student

    Student Well-Known Member

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    Hi All,

    Which banks or financiers are the most competitive at the moment for financing commercial property purchases?

    What can be obtained in the market currently for the following terms with such banks?

    * Maximum leverage
    * Interest only term
    * Maximum term: how dependent is this on lease term
    * Interest rate
    * Upfront fees

    Is anyone aware of any banks that offer offset accounts for commercial property loans?

    Thanks.
     
  2. jefn89

    jefn89 Well-Known Member

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    While not an expert in broking for commercial finance I've got an interest, being an investor in strategies that are looking at better cash flow along with starting to get more into commercial finance broking here are some brief insights below:

    * Maximum leverage - Generally max will be 70% LVR for commercial, this is standard across the industry, unless you want to consider doing 4 units on 1 title or below 4 units
    * Interest only term - Usually 5 years max
    * Maximum term: how dependent is this on lease term - The lease term is more about your own risk mitigation from my understanding i.e. if you have a tenant on a 3 x 3 x 3 with the first option expiring in 2019, you could foreseeably have a vacant property next year. Max term would be 30 years with St George commercial, most are between 15 - 25 years
    * Interest rate - Interest rate shouldn't be a major concern, if I have a client looking at commercial and asking for the best rate I usually know that they're not that experienced. You want to go for loan term as this is what will impact serviceability i.e. an interest rate of 4.5% over 15 years isn't as good as a 5.29% over 25 - 30 years.
    * Upfront fees - Not sure on this one
    * Offset accounts - Depending on the structure you're using i.e. trust, individual etc most should have an offset if they're a major, some of the specialist ones i.e. ThinkTank will only offer redraw usually

    Most of the majors will do it, you'll need a min 30% (usually) for a standard commercial investment. St George is probably best due to loan term, ThinkTank can consider 25 year terms for properties in major cities as well, ANZ can consider 25 year terms. The issue you'll find is getting a commercial lender to take you seriously as well, best to approach a specialist commercial broker rather than the bank directly. Even we have issues as we don't write a lot of commercial loans
     
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  3. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    lets reverse this to get more specifity :)

    what are you looking to buy and what are your resources

    The general question is akin to

    What does a car cost ?

    ta
    rolf
     
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  4. Student

    Student Well-Known Member

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    Thanks jefn89, that’s helpful.

    Rolf, at the moment, it is a bit undefined and still open. I have been looking at a mix of commercial, including retail and office and potentially industrial. I am just looking to get prepared when something lands so that I know which financiers are best to approach.

    I’m trying in particular to see who offers the most leverage and longest loan terms, but also interested in competitiveness on other costs such as interest rate as well.
     
  5. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker Business Member

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    Max LVR is dependent on a lot of things with the main thing being security type such as retail, warehouse, offices vs exotic securities like Petrol Stations and also locations of the securities and loan amounts.

    Couple of lenders will go to 80% LVR and the majority will go 65%-70%.

    Max term is generally 5 years - it can be rolled over but highly dependent on the lender's risk appetite and of course your financial position at the time.

    Max term is varied from any 15 years to 30 years.

    Interest rate is anywhere from 3.99% to xxx% depending on a lot of things such as lender, security, loan term, sponsors, etc.

    Upfront fees include valuation fee (dependent on the security type but around $1k-2k for a retail/office/warehouse/industrial dwellings), application fee (anywhere from 0.50% to 2% of the loan amount depending on the lender) and misc such as legals, etc.

    Offsets - only one lender does it on commercial and thats Suncorp.
     
  6. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    is there a specific reason why youd want to go something so fluid on your own, and not select and work with a broker thats been there a few times before ?

    There are often good genuine reasons for DIY.


    ta
    rolf
     
  7. Scott No Mates

    Scott No Mates Well-Known Member

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    It's not residential so be prepared to pay for the valuation, bank's legal fees & searches, application fees and the bank manager's new M6.
     
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  8. Student

    Student Well-Known Member

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    Thanks very much Shahin.

    Which lenders that will go up to 80% leverage?

    Are there particular lenders that will provide the longer terms to 30 years?
     
  9. Student

    Student Well-Known Member

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    No particular reason. Just thought it would be good to get a better understanding of the financing market.

    What do you think are good genuine reasons to go direct?
     
  10. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Education and for those the like a combination of " control" and excitement - seemingly competing commitments - but often in the one.

    In commercial the comms paid are often tied to some sort of fee the borrower pays so there are some "savings" possible..............its a genuine reason, but often not a sensible one.

    ta
    rolf
     
  11. Blacky

    Blacky Well-Known Member

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    Generally speaking going direct for commercial is either going to cost you in the long run, or waste a lot of time.

    Speaking to an experienced COMMERCIAL broker would be a good idea for those lacking experience.

    In saying that for all our commercial deals we have gone direct, however, I’m an ex commercial banker, and my brother is currently one. Between us we have over 20years experience doing it, so our position is a bit unique.

    Blacky
     
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  12. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker Business Member

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    Arguably there are far more variances in commercial lending than residential lending so its going to be harder and more time consuming door knocking on every lender's door trying to find out what they do and don't do.

    Back to your question though - couple of lenders do 80% namely ANZ, BC HL (P&I only) and Liberty and IMB do 75% LVR. Liberty also do 30 year term and St George and TT do 25 year terms. Be careful of any most lenders offering 30 year terms as they are residentially backed/secured loans.
     
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  13. Student

    Student Well-Known Member

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    Thanks, would you save on some fees if you go direct?

    I'm quite comfortable speaking with the banks but agree that a broker may be more efficient, with a range of relevant contacts.
     
  14. Student

    Student Well-Known Member

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    Thanks Shahin, that's helpful. Who are BC HL and TT?

    Yes, perhaps it will be harder and more time consuming going direct.
     
  15. Blacky

    Blacky Well-Known Member

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    Ceteras parabis - yes you would save money going direct. As commercial broker fees are not included in the bank rate, but are ‘added’ into it (unlike resi loans, where you pay the extra weather you use a broker or not).

    However, that would require you to have a solid understanding of what you are talking about. It is much harder to ‘shop’ a commercial deal, as you will very rarely be comparing apples to apples.
    Any banker worth his salt would see someone who hasn’t done this before a mile away, and is likely to steer clear as the work for reward isn’t there - unless it is - in which case you will be paying a lot for the privilege of his/her time (aka - getting royally screwed).

    If ‘saving money’ is your number one priority, being in the commercial space may not be The best place for you.
    The ‘best deal’ might be the bank willing to give you the money, without you having to give up an organ, and mortgage your first (and second) born child.

    Given you are looking at a commercial property as an investment (as opposed to an operating entity) your finance options automatically become restricted.

    I would suggest working with a knowledgeable broker esspecially for your first commercial loan.

    Blacky
     
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  16. Harry30

    Harry30 Well-Known Member

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    Blacky, re borrowing for commercial, it strikes me that the terms and conditions are critical, much different to resi where the average borrower has probably not read the loan contract.

    Will there be an annual review?
    What is the LVR you must maintain, and/or achieve by what date?
    If the LVR falls below target, what timeframe do you have to restore?
    Can Bank order revalues at any time? Eg the week following your tenant going bust and vacating?
    If the bank finds you in breach of the LVR, can they call in the loan, or give 90 days to find alternative finance?

    I may be off the mark with some of this and probably missed some other key T&Cs, so feedback welcome. Keen to learn from your experience.
     
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