Commercial building owners have been struggling for decades to efficiently and economically access their property's equity. This lack of liquidity is among the most frequent complaints of commercial real estate investment. Cash-poor, equity-rich, according to the old saying.
However, there are several alternatives for smaller commercial property owners (both users and investors) who are making heads turn. Historically, access to commercial equity through loans has been restricted for legitimate reasons. A second lien position in a financial institution that is not a separate one is among the most dangerous situations for commercial lenders to find themselves in.
In the past, local banks were recognized for taking on these loans, assuming that the loan-to-value ratio and debt coverage ratio were high - usually less than 60 percent LTV and more than 1.4 on the DCR. The banks wrote these lines like a business credit protected by commercial property. Banks also sought to establish a bank depository "relationship," as bankers usually declare with the loanee.
Developers of complex and sophisticated projects also have 2nd lien loans, also known as mezzanine loans. These loans are typically only available to highly skilled and accomplished developers working on projects that exceed $5 million.
A few lenders have recently taken a step up and established commercial equity lines or commercial lines of credit. The result is liquidity not previously seen by small homeowners of buildings. The benefits include no upfront costs to close the loan (no appraisal, not even a title, and no environmental fee). The loan can be combined with values as high as 75% and meager interest rates, ranging from Prime plus.75 percent - 1.25 0.25 - 1.25.
Over time, we'll see what these lines of commercial equity impact "Main Street" in the USA; however, one thing is sure commercial property owners can now borrow more than they ever had before.
Jeff Rauth is President of Commercial Finance Advisors, Inc. He is a specialist in Commercial Real Estate Loans between $400,000 to $12,000,000. Offers unique loan programs nationwide. More information can be found at their website: Commercial Loan USA
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