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)