Jennifer Bradshaw and her husband own a successful bridal shop in Salt Lake City, Utah. The business is thriving in it’s 6th year and it is cash flowing. Both Jennifer and her husband have stellar credit and good cash reserves. There’s a small amount of debt on the commercial building they own and run their bridal business out of, around 50% LTV. They are due to refinance the commercial loan on the building and are unable to refinance. The bank that has the loan currently, wants it off their balance sheet. Another bank just declined the loan for the sole reason that they don’t feel comfortable with the property being a single tenant building.
I hear a story just about everyday about a borrower with incredible credit and assets who has been declined for a commercial loan at the bank. With the exception of smaller, local banks that are lending on commercial properties under $1 MM, it is still tough for most borrowers to qualify for commercial loans in the current market. For Multifamily and Assisted Living properties, FHA financing is out there for properties and borrowers that qualify, but can take up to 9 months to complete the loan process and close. Many commercial real estate investors have had to turn to hard money and private money lenders to bridge the acquisitions of such properties.
Many of the larger banks are trying to raise capital and this means deleveraging their commercial assets from their balance sheets. The five year, commercial loans that were written in 2006 or 2007 are coming due, and many banks are telling borrowers to go to another bank for the refinance. Not only have values declined, but occupancy of these same commercial properties has also taken a nosedive in some cases as well.
Because commercial real estate is the backbone of business in this Country, commercial lending is crucial. With commercial bank loans in scarce supply, without the availability of private and hard money lenders to provide bridge loans during these tight times, many commercial real estate investors would have no other options.