Investing in Commercial RE - Strip Malls

[Craig]

We're thinking of purchasing a strip mall ... multiple tenants, and the Nashville / Williamson County, TN area is experiencing a fascinating amount of growth.

Would appreciate any sage advice on financing (likely current LTV's, rates, good lenders), better to buy or develop, better to buy the RE directly or find local ltd partnerships for commercial RE investment, location criteria, your success and / or disaster stories. Alternative commercial real estate investments ... our focus is on multi-tenant to reduce risk ... also considering small office / professional buildings. Success and / or distress stories would be helpful. Thanks.

 

[tryan]

Only did 1 commercial loan ... the rate was not good (~2% higher than residential). If I did this again I'ld try to get the seller to finance some/most of the deal at residential rates.

my 2 cents.

 

[justin]

Do tons and tons and tons of due diligence. Look at length and amount of leases. Look at weasel clauses. Have inspections done. Too numerous to name everything.

The payments on the loan probably won't be able to exceed some fraction of your gross revenue minus operation/maintenance/taxes/insurance costs. The lenders like to have their payments met and then some by your free cash flow. Might be a 1.25 multiplier (1.25 * loan payment = free cash flow required). That might help in evaluating the financing and feasibility. The rate - I'd say at least a point higher than the best residential rate out there. Maybe more depending on risk and the terms.

 

[Mr._johngalt]

Do tons and tons and tons of due diligence.  Look at length and amount of leases.  Look at weasel clauses.  Have inspections done.  Too numerous to name everything.

The payments on the loan probably won't be able to exceed some fraction of your gross revenue minus operation/maintenance/taxes/insurance costs.  The lenders like to have their payments met and then some by your free cash flow.  Might be a 1.25 multiplier (1.25 * loan payment = free cash flow required).  That might help in evaluating the financing and feasibility.  The rate - I'd say at least a point higher than the best residential rate out there.  Maybe more depending on risk and the terms. 

Re. "due diligence", you can't overdo it. I have done it for myself
many many times, and have hired myself out to others to do it.
You can count on this. No matter how much time and effort you
expend, you will still have surprises. That is just how it works.

JG

 

[Craig]

Thanks for the tips ... any recommendations on commercial lenders?