Industrial Real Estate Lending

Industrial real estate lending can be a good investment if you understand the risks associated with this type of asset and how the Banks assess the risk. These businesses encompasses manufacturing facilities, warehouses, distribution points, self-storage facilities, and more.

Investing in an Industrial property is relatively straightforward with little complexity. When looking for a property to buy, the owner needs to target and strategize the following issues:

• Stable tenants
• Achievable rentals
• Good property location
• Industrial property precinct
• Growth of the local community and business sector
• Vibrant industrial community supplying services, products, and raw materials
• Access to transport hubs, ports, airports, and railheads

Here is how industrial business loans are secured 

Industrial properties to be invested in are deemed profitable in the future; that is the reason people loan to buy them. The Debt Servicing Criteria are very different when compared to residential properties. For industrial real estate, the rent received will be related to a considerable cost of debt. One of the most significant differences in the lenders’ level of debt will allow borrowed against industrial property. While the norm for industrial property is 60 – 65% of value, it is relatively common for lenders to borrow up to 80% of value.  

Industrial loans are secured by various forms of assets, including equipment, land, and buildings. The type of collateral used will depend on the nature of the loan (e.g., tax deed, mortgage, insurance, preferred or ordinary). To obtain financing, a company needs to submit a balanced scorecard analysis to the examiner. The balanced scorecard consists of credit analysis: 

• Cash flow analysis, 
• Debt metrics, 
• Management’s profit margin, 
• The number of employees
• The type of business
• Years in business
• Their financial strength
• What’s the future of the business looks like, as well as other pertinent facts.

Some of the main benefits of an industrial real estate lending 

One, it can provide companies with additional capital to meet unexpected expenses. For instance, when there is a sudden increase in inventory, you cannot increase your employee strength to counter the increased need for supplies. Your only option is to add extra warehouse space. By using industrial space, you can save costs by not having to rent additional storage space.

The advantage and disadvantage of industrial business loan

One advantage is that it is easier to get qualified for a more significant amount of loan. The second is that mortgage lenders see them as good collateral for loans because they are fully leased warehouses occupied on the long leases. Long-term financing is usually available for industrial investors at very competitive interest rates.

There are a few disadvantages of this type of financing, first, due to the smaller number of properties available. Second, you may have to rely on local government organizations to help you find potential tenants. Sometimes, the company you are purchasing the property may not find a buyer within the specified time frame. If you own the building, you can try advertising in local newspapers and real estate magazines, but you must keep in mind that timing is critical.

Factors to consider when purchasing property with industrial lending.

First and most importantly, if you are purchasing a property, the condition is essential. Lenders consider the length of a lease to be a significant factor when assessing the lending risk. Second, lenders will not favor short-term leases. There is the risk of the tenant moving out leaving a vacant property, which would seriously affect the property’s cash flow and the ability to service the debt.

These are a few things to keep in mind when thinking about industrial real estate lending. This type of financing can help you secure a better interest rate than that offered by commercial banks. However, keep in mind that just because you have a lower interest rate does not mean that you have a better deal. A good rule of thumb is to negotiate everything before closing any deal. Ensure that you fully understand the loan terms and thoroughly address the problems with your loan officer.