Commercial construction owners have struggled for decades on how to effectively and economically tap their commercial property's equity. This lack of liquidity seems to be one of the biggest complaints in commercial real estate ownership; equity rich, cash poor, as the saying goes.
There are a few new options however for the small commercial asset owners (both investors and users) that are turning heads. Historically, accessibility to commercial equity via loan products has been very limited, and for good reason. Second lien position behind a detach financial custom is one of the riskiest positions for a commercial lender to be in.
Commercial Building Loan
However, in the past, small local banks have been known to take on these types of loans assuming that the combined loan to value and debt coverage ratios were strong - typically less than 60% Ltv and over 1.4 on a Dcr. Banks wrote these lines roughly like a firm loan that happen to be secured by the commercial building. The banks also, wanted a depository "relationship," as bankers all the time say, with the borrower.
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Developer of large sophisticated projects also have had 2nd lien position loan options, called mezzanine loans. But these types of loans are commonly only ready to very experienced and prosperous developers working on projects over ,000,000.
Interestingly, a few lenders have recently stepped up and created commercial equity lines aka commercial lines of credit. The consequent is liquidity never before known for small construction owners. Highlights include no upfront fees to close loan (no appraisal, no title, and no environmental fees), combined loan to values up to 75% and relatively low interest rates at Prime plus.75% - 1.25%.
We will see in time how much of an impact these commercial equity lines make on "Main Street" Usa, but one thing is for certain: commercial asset owners have more loan options now, than ever before.
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