FINANCING FOR RETAIL CENTERS

The financing for centers varies greatly in comparison to single tenant properties. That is because, as you can imagine, instead of one tenant there could be anywhere from 2 to over 100 at a specific development property. So that can place tons of variables that alter what a lender will do for a loan on a property. In certain lower prices ranges of retail centers, say $2 million up to $10 million, most lenders are credit unions, local, regional, and national banks.

With retail centers you have:

• Length of the primary term with tenants (typically 3 to 10 years)

• Tenant Type (mom and pop, small franchisee, large franchisee, regional brands, and national credit tenants).

• Tenant Mix (Essential and Experiential versus clothing type or mattress stores (not ideal)

• Quality of location: (Urban Core, Strong Suburban, Small Suburban, Rural )

• Corridor location: (Mid-block, behind other buildings, at red light)

• 1 story or multiple stories (If multiple look for elevator versus stairs only access)

• Cap rate versus where interest rates are at in the market.

• If any tenants owe back rent (aged receivables report).

• Occupancy levels of the building (what percent filled such a 85,90,95% etc.)

If the cap rate is high enough (usually 200 basis point spread between) interest rate and cap rate then could possibly put down 30 to 35%. If cap rate is lower then likely 40 to 45% down. Interest rates and cap rates are ever changing in the marketplace so best to get 2 to 3 soft mortgage quotes on a property of interest from a capital markets mortgage broker.

Generally, items for consideration with financing are:

• Interest rate

• If it’s variable or fixed

• What amortization period for payments

• Principal and interest or interest only loan or hybrid, (full recourse, non-recourse, partial recourse loan)

• Any pre-pay penalties

• What LTV% for down payment

• Any special lender reporting requirements

• Any (lockbox) cash sweeps for reserve before owner gets paid remaining cashflow, etc.

• Is the loan assumable

• Length of fixed rate loan in years? (7 to 10 preferable)

• Certificate of Insurance for Owner (general landlord insurance policy)

• Engineering Drawings (diagrams of plumbing / electrical / water-sewer plans)