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)