Defaults on commercial loans related to retail expected to slow this year

Commercial loans tied to retail properties will find new strength over the coming year, as retailers find new efficiencies.

The record pace of retail defaults and store closures will likely slow in the coming year. retailers are benefiting from newfound efficiencies and an improving economy. Analysts believe that even struggling to department stores, like Kohls and Macy’s, could see their situation improve in 2018.

Moodys analysts anticipate a better outlook for retail across the board. Moodys predicts that the owners of retail properties could see growth in operating income between 3 1/2 to 4 1/2% over the coming year. 5 out of 14 categories of retailer may even see profits grow higher than 5% in 2018. Moodys claims particularly strong players will include online sellers, dollar stores and home improvement retailers. Warehouse clubs, department stores, office supply stores, auto retailers, apparel sellers and drugstores will continue to struggle.

2017 was particularly dire for brick-and-mortar retailers. Store closures grew by 224% over the course of last year. Retailers planned to shutter a total 6879 locations by the tail end of 2017. 6,163 store closures had already taken place at the end of last November. 2017 broke the record for store closures which was previously set during the depths great recession.

The defaults in retail related commercial loans seen last year seemed to have little to do with the economic situation.

Paradoxically, in spite of record breaking store closures, consumer confidence and retail sales overall reached all-time highs. Store closures last year seemed to have occurred mainly in long brick and mortar retailers unable to adapt to changing consumer shopping habits. The National Retail Federation found in a recent survey that last year's Christmas shopping season was the first time record for the majority of those surveyed plan to shop online exclusively. 59 percent of consumers surveyed by the group had no plans to do holiday shopping at a mall or department store.

The holders of retail based commercial loans are expected to adapt and defaults are expected to slow as a result.

The record number of defaults last year was likely among retailers who were unable to keep pace with changes in consumer shopping habits. Moodys cites restaurants as a particular example of an industry that has adapted to the needs of consumers. “Consumers are wrestling with higher non-discretionary spending needs while restaurant companies face higher operating costs — predominantly labor — and challenging traffic trends,” said Moodys vice president Bill Fahy. According to Moodys restaurants and other retailers are expected to meet these and other challenges over the course of the coming year. As retailers close more locations, these same retailers will likely find better ways to boost sales at their remaining locations. Moodys expects the wave of defaults to peak by March of this year to 10 1/2%. By this October these defaults are expected to slow with an estimated 4.9% of retail debt in default by that time.

Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701

About the Author:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

Technorati Tags: commercial loans,commercial lending,commercial mortgage

Commercial Real Estate Loans vs Home Mortgages

Commercial real estate loans are a different animal than their home mortgage counterparts. Learn the differences so that you are prepared when walking in to the commercial lender.

There’s a few basic differences when it comes to commercial real estate loans versus home mortgages. While both require due diligence and forethought, CRE loans have increasing regulations and restrictions and are not as easy to qualify for. One of the big surprises for those just entering the market may be the balloon payments associated with commercial real estate loans.

A balloon repayment plan starts with the same terminology. It may be a 30-year mortgage with payment on both interest and principal. But that is where the similarity ends. Following a preset time of 3, 5 or 10 years, a balloon payment is due, at which point the entire outstanding balance is payable. Needless to say, this is where many a business falls through the cracks.

And what happens as the balloon payment nears? If they have not been able to put aside a substantial savings, business owners and developers begin to look for alternative funding which is not always easy to secure. But if the business has had cash flow problems or the development has hit a few snags, a balloon payment may not be a feasible option for the borrower. At this point, they must try and refinance and, depending on their last three- to five-year financials, may or may not qualify for a loan. The other scenario is a business that is doing fairly well, but the lender has decided they want to get out of that particular CRE segment.

Secure a sufficient down payment in order to increase the chances of affording your investment.

Obtaining a down-payment of 20 to 30 percent will help ease both traditional and non-conventional lenders. After all, if someone has some “skin in the game” it makes it that much harder to simply walk away. In addition to coming up with a larger down payment, requesting an initial loan that has a little cushion in case of project delays can help ease the pressure.

Come prepared with three to five years of tax records, balance sheets, cash flows, income statements and a business plan. Keep in mind the debt-service-coverage as well as the loan-to-value ratio. For conventional lenders, a good credit score is also required. Because of the increased risk, commercial real estate loans have higher interest rates and shorter terms. Be sure to check on potential prepayment penalties as well.

Unlike home loans, CRE loans are not done once the papers are signed. Some lending institutions require that you continue to provide quarterly or annual income statements. Loan covenants may include maintaining a certain debt-to-income ratio or cash flow. For those just entering into CRE investments, unconventional loans often offer the best solution. At Level 4 Funding, we work with private investors who offer hard money loans on most types of CRE projects. Approval is often accomplished within 24 hours with funding close on its heels—sometimes in less than a week. Call us for a no-obligation quote.

Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701

About the Author:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

Technorati Tags: commercial loans,commercial lending,commercial mortgage

Commercial Lenders – Getting in on the Distribution Craze

Distribution centers seem to be popping up in just about every town and along every highway. Learn a little about this growing segment of CRE and how you can find a commercial lender in order to get in on the latest craze.

You are probably aware of the newest generation’s love of all things online—including shopping. While it may not be the only reason for brick and mortar’s decline, it certainly has contributed. In 2016, online sales of goods accounted for 360.3 billion dollars. By 2021, this figure is expected to rise to 603.4 billion. And, as you know, all these online shops, stores and discounted goods are going to need a home as they crisscross the country—delivery warehouses and distribution centers.

There are various logistics to consider when creating an online presence. While Macy’s is looking to close about 100 stores, their online sales are taking the lead and, while stores are closing, distribution centers are being born. In 2015, it moved into what was once Campbell Soup’s south Sacramento plant, making this location an internet fulfillment center. With Macy’s bringing about 175 warehouse jobs with its presence, Sacramento gave something back in return—a sales tax reimbursement of up to 50 percent. Just two years earlier, Macy’s built a massive 1.3 million-square-foot distribution center near Martinsburg, West Virginia. Commercial lenders are taking notice.

So, what are the different facilities that these online mega-stores require? They need distribution centers which deliver goods to stores and online fulfillment centers which complete online orders—two very different environments. Easy access to the interstate is critical to these facilities as well as a strong labor pool. And while on the subject of a labor pool, another consideration is ease of public transportation for employees as well as affordable housing. So just where are they finding these mega centers?

Warehouses have become the new retail—increasing available capital from commercial lenders.

Real-estate brokerage CBRE pointed out the increase in regional hubs as retailers “bring their supply chains closer to the final mile of distribution.” These locations are determined by their customer’s locations who live within a few hundred miles of these warehouses. Emerging hubs, as determined by CBRE, include Indianapolis, Phoenix, Reno, Central Florida, South Central Pennsylvania, Cincinnati and Bakersfield. It must be very near a hub or major mode of transportation. Some require close proximity to ports. Other important considerations include the impact on the environment.

Warehouses have shown surprising growth and return on investment these last few years, although not too surprising to those in CRE. The Urban Land Institute placed the industrial category at the top for CRE investments in 2016.

So, what’s holding you back? For some, it’s the required capital and a history of being turned down by traditional commercial lenders. If you’re looking to get into this booming segment of CRE, don’t let the past stop you. Call us at Level 4 Funding. We offer loans up to $50 million for warehouses, industrial and distribution centers. Acceptance is based predominantly on collateral, making those with not quite perfect credit scores often pleasantly surprised. In addition, funding can occur in as little as a few days, making it possible to place a quick bid on that property that just came on the market that’s aching to be a fulfillment center. Call us for a no-obligation quote.

Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701

About the Author:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

Technorati Tags: commercial loans,commercial lending,commercial mortgage

Commercial Lending -The Numbers Commercial Lenders Look For

When looking into commercial lending, having your numbers in place can make the difference between an approval or a rejection. Here are a few of the calculations lenders tend to look for.

Loan-to-value ratio (LTV) – This commonly used equation is defined as follows: The amount of the first mortgage / the value of the property x 100 percent. It is used to determine if the commercial property that will be used as collateral is worth more than the amount of the loan. Combined loan-to-value ratios simply means that there is more than one mortgage and the two will be combined. Most traditional commercial lending institutions, such as banks and credit unions, will limit their LTVs to about 70 percent, sometimes 75 percent. Business properties usually come in at around 65 percent. This means that you will need to find additional financing or have at your disposal anywhere from 35 to 25 percent of the total loan amount.

Debt-Service-Coverage Ratio (DSCR) – This ratio confirms that the property is making enough net operating income (NOI) that it can cover the proposed loan plus a little cushion. It is determined by dividing the NOI by the annual debt. The total debt service includes all principal and interest payments. A DSCR of 1.0 indicates that there is enough capital to cover the loan. Commercial lending institutions, however, like to see a little extra in the coffers and may require anywhere from a 1.10x to 1.20x debt service coverage ratio. An example of this would be a business that is netting $120,000 annually and is trying to obtain a loan that would create a debt of $100,000 per year. In this instance, their DSCR would be 1.20x.

Net-Worth-to-Loan-Size Ratio – This ratio is often used to determine the amount for construction loans. It is determined by dividing the net worth of the developer by the loan amount. Ideally, it comes in at 1.0, meaning that the builder or developer has a net worth that equals the amount of the construction loan. If one developer does not qualify, two or more contractors can combine their net worth in order to come up with the needed financing.

Banks and other lending institutions want to know that you stand to make enough profit that abandoning the project half-way through the construction phase is not warranted despite some unexpected costs and setbacks.

Profit Ratio – This ratio is also predominantly used in the construction industry. It determines what profit is expected once all T’s are crossed and I’s dotted and is a way to confirm that the developer is in it for the long run despite a few potential and always possible set-backs. It is the Developer’s Projected Profit divided by the Total Cost of the Construction Project x 100 percent. Commercial lending institutions look for this ratio to come in at 20 percent or more.

At Level 4 Funding, we provide easy-to-quality construction loans for up to 24 months with monthly draws.

Our APR starts at 9.5 percent with loans available for up to $50 million. What do we need to get you started? Simply bring in your budget, plans and permits.

Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701

About the Author:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

Technorati Tags: commercial loans,commercial lending,commercial mortgage

Obtaining Commercial Lending

There are several reasons why individuals decide to take the plunge into investing in commercial real estate, and there is often one reason why they drag their feet—finding commercial lending. Let’s look at why CRE is an excellent choice for many and how alternative lenders are creating opportunities for first time investors.

A good return on investment (ROI) motivates many to get into CRE. Though returns dramatically vary, a general average lies in the 6 to 12 percent range. This is because rents, whether multifamily, office or industrial, either involve several units (resulting in multiple streams of income) or warrant much higher rents than a typical single-family home.

Commercial real estate offers more security in that vacancy rates tend to be lower and they are not as reliant on comparable sales when it comes to valuation. Leases for single-family homes are usually anywhere from six months to one year whereas commercial rentals can have terms that range from five to twenty years and longer.

Single family homes rarely come with a professional manager whereas managers and apartments go hand-in-hand. If you do not have space for a live-on-site manager, there are professional management companies that specialize in these types of buildings. If you find and start with the right tenants, a CRE investment may require very little hands-on management.

Location is Crucial with CRE

It does take a little more research on your part before delving into CRE. There are several distinct types of investments with each carrying their own pros and cons and due diligence list. Offices are best in a strong economy and in markets with a good labor pool to draw from and in-demand leasing space. Warehouses and distribution centers require centralized locations with easy access to key infrastructure. Maintaining high occupancy and rental rates in an apartment building are accomplished if the building is in a high-demand area as well as a strong job market. Buildings near collages are considered top investments, but even those require additional considerations such as high-turnover rates and the potential of increased vacancies during the summer months.

Funding is often the obstacle that keeps investors from moving forward into the CRE segment. At Level 4 Funding, we work with hundred of private investors, one of which may very well specialize in your segment of commercial lending and real estate.

Because traditional commercial lending requires a few years of financials and experience in the specific CRE market, getting started in the business can be challenging. It is also common for commercial lending institutions to require a down payment of 20 to 25 percent. Alternative lenders are not bound by the same restrictions. Because of this, they can offer find a way to fund a commercial real estate property when other sources have been unable to provide the needed capital. Call us and see if we have the capital you require to move forward with your dream. We offer hard money construction, bridge, office, warehouse and multifamily unit loans with terms from 3 to 60 months.

Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701

About the Author:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

Technorati Tags: commercial loans,commercial lending,commercial mortgage

Commercial Loans on Special Purpose Properties

Depending on the property, it can be difficult to find a commercial loan on those defined as “special purpose.” Here are what traditional lenders look for in these types of properties and why you may need to consider unconventional financing.

A special purpose property is usually built by the investor and constructed for specific, limited uses. These may include car washes, churches, self-storage facilities, gas stations, golf courses, hospitals, dormitories, nursing homes and theaters. It is a property that, once built, will require a large capital investment to convert it to another use. Because of this, most lenders consider this type of property a risky investment.

The Small Business Administration makes loans on these types of properties, but the commercial loan requirements are more stringent than their other loan programs. For instance, they will require at least a 15 to 20 percent down payment as well as credit scores above 680. Their 504-loan program consists of two separate loans—the first one made by a bank or finance company for up to 50 percent of the project cost and the second loan made by a local Community Development Corporation and secured by a 2^nd lien on the assets. Though SBA loans often offer the most competitive interest rate and the highest loan-to-value ratios, only prime borrowers are likely to qualify.

Traditional lenders for these types of properties usually fall into the 60 to 75 percent LTV range. So, if the property your considering investing in comes at a cost of $750,000, the bank will offer you anywhere from $450,000 to $562,500, leaving you needing to come up with a down payment that ranges from $187,000 to $300,000. They’ll also require a proven history of your success in managing this type of investment property. If this is a new construction project, expect to pay higher interest rates as this type of commercial loan is considered much riskier than a completed project. There are, however, lenders who specialize in special purpose properties as well as borrowers with limited credit history that need higher loan-to value (LTV) ratios than traditional commercial mortgages can offer.

Hard Money Lenders

Hard money lenders are one of those unconventional commercial loan lenders that investors often turn to when they have difficulty qualifying for a traditional loan or they do not have the time to wait for such a loan to be approved. This occurs when a hot property comes on the market and investors require capital in weeks instead of months. It’s very apparent to those in the CRE world that private money lenders are filling the gap created by tightening commercial underwriting standards. And this is good news for you, the investor.

Private hard money lenders provide funding for all types of CRE investments including special purpose properties, warehouse, industrial, multifamily and office.

At Level 4 Funding, we offer bridge loans, construction loans and loans with specific types of properties in mind. The truth is, because we work with over 200 private investors, there are very few types of projects that we don’t invest in. We offer up to 90 percent LTV with 3 to 60 months interest-only payments. If we sound like the right fit for you, call us for a complimentary no-obligation quote.

Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701

About the Author:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

Technorati Tags: commercial loans,commercial lending,commercial mortgage

Commercial Lenders

Before you go in search of your first commercial lender, you need to determine just which sector of this lucrative investment strategy you are going to invest in. Let’s look at one of the most popular CRE investments—offices—and find out what’s hot for 2018 and where savvy investors are plunking down their chunk of change in order to increase their ROI.

And once you’ve developed a plan, stick to it. Many an investor has let their limbic system, the emotional overriding component of their brain, waylay them from their chosen investment strategy. So, let’s take a look at offices and see if this might just be the CRE investment strategy that you’ve been looking for.

The office building asset class accounts for about 20 percent of the total CRE market. This segment of the market can be volatile, so it’s important to know just what to look for in this arena. The overall economy is an important consideration as well as the projected job growth when choosing a particular market. Look for a declining vacancy rate and a rising absorption rate. Include the surrounding communities in your assessment as they will have a strong impact on your strategy and market. According to Statista, vacancy rates in office space are forecasted to decline from 12.9 percent in Q4 2017 to 12 percent in Q2 2019. In the first quarter of 2017, office space beat out every other segment in commercial construction starts including retail, warehouse, hotels, amusement and parking garages with a whopping 6.6 billion.

Office assets are usually assigned a quality rating, similar to multifamily units. Their standards can vary depending on the local market, but will be important to your commercial lender.

· Class A: These high-end properties are usually recently built or extensively remodeled. They usually have high visibility and are within easy access to major amenities. Core focused REIT and pension funds tend to veer towards this type of office investment.

· Class B: These are usually older buildings that may require some minor renovation. These are fairly popular among commercial lenders, particularly turn-around investors and private equity groups.

· Class C: These generally require some major capital investment for improvements. They are also not in very desirable locations and are typically used for redevelopment opportunities.

And just what cities have the highest rents? Hong Kong is king with a price of $255.50 per square foot. New York City comes in second with a price of $153, San Francisco in fifth with $105 and Los Angeles edging into 10^th place with a price of $73.

Co-Working Spaces is a growing consideration in this market.

While this type of office space was once considered the go-to for freelancers and small corps, times have changed. Big businesses are using this type of workspace in order to get their feet wet in a community before relocating. According to U.S. News, CBRE reported that co-working in America is experiencing an approximate five-year compound average annual growth rate of 21 percent.

Some investors are turning to REITs in order to get into this segment of CRE. Both Vornado Realty Trust and Boston Properties include co-working in their portfolio.

There are alternative commercial lenders who can help you get the funds you need for your project. At Level 4 Funding, providing capital for office projects is one of our specialties. We offer loans up to $50 million, 90 percent LTV, competitive loan rates and quick funding. Call us for a no-obligation quote.

Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701

About the Author:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

Technorati Tags: commercial loans,commercial lending,commercial mortgage