Property Types

Multifamily

  • Multifamily properties typically offer stable and predictable cash flows due to multiple rental units, reducing the risk for lenders.

    Lenders may offer higher LTV ratios for multifamily properties due to their perceived stability and income-producing nature.

    Lenders often assess DSCR, which measures the property's ability to cover debt payments from its net operating income.

    Multifamily properties with steady rental income usually have favorable DSCRs, making them attractive to lenders.

    Government-sponsored enterprises (GSEs) provide specialized loan programs for multifamily properties including affordable and workforce, offering competitive interest rates, longer terms, and higher LTV ratios.

    Financing options specific to affordable housing projects may be available, including programs from government agencies like HUD, and LIHTC and 501(c)(3).

    Lenders consider the stability of tenants in multifamily properties. Properties with low vacancy rates, long-term leases are typically more attractive to lenders.

    Multifamily properties tend to be more resilient during economic downturns compared to other commercial real estate sectors, and have the potential for long-term appreciation.

Senior Living

  • Senior living properties must adhere to comprehensive regulatory requirements at the federal, state, and local levels.

    Lenders need to ensure compliance with health and safety regulations, staffing mandates, and licensure, which can influence the financing process.

    They often assess the operational expertise of the borrower or management team, as running senior living facilities demands specialized knowledge in healthcare, resident care, and facility management.

    These properties have varied revenue streams, including private pay, Medicare, Medicaid, and long-term care insurance. Lenders evaluate the mix and stability of these income sources when considering financing.

    Operating costs for senior living properties are typically higher due to staffing, healthcare services, and facility maintenance. Additionally, these properties may experience longer lease-up periods compared to traditional multifamily properties.

    Specialized financing programs, such as government-backed loans from agencies like HUD, may be available and offer favorable terms for eligible properties.

    Lenders often require additional risk mitigation measures, such as higher reserves, performance guarantees, or third-party management agreements, to ensure effective operation of the facility.

Self Storage

  • Self-storage properties typically offer stable and predictable cash flows due to a diverse tenant base and low turnover rates.

    These facilities have lower operating costs compared to other commercial real estate types, requiring minimal staffing and incurring lower maintenance expenses, which positively affects their net operating income.

    They also tend to maintain high occupancy rates, even during economic downturns, as people need storage for various reasons like moving, downsizing, or other life changes, ensuring steady demand.

    When financing self-storage properties, lenders often focus on the asset's performance and potential rather than the borrower's creditworthiness. They assess factors such as the property's location, occupancy rates, and revenue potential.

    Effective management is crucial, and lenders may evaluate the borrower's experience and the quality of the property management team to ensure consistent cash flow and successful operation.

    Self-storage properties must comply with specific zoning laws and permit requirements, and lenders will assess these compliance factors as zoning issues can impact the property's viability and potential for expansion.

    These properties are scalable, allowing owners to add more units as demand grows, and lenders take into account the potential for future expansion when considering financing.

Retail

  • Retail properties often have a diverse mix of tenants, including anchor tenants and smaller specialty stores.

    Lenders evaluate the quality and stability of these tenants, lease structures, and lease terms, including percentage rent clauses.

    The location of a retail property is critical. Properties in high-traffic areas with strong visibility and accessibility are more attractive to lenders.

    The potential for foot traffic plays a significant role in financing decisions. Retail properties can be more sensitive to economic cycles and consumer spending patterns. Lenders consider the property's resilience to economic downturns and changes in consumer behavior when evaluating financing.

    The sales performance of retail tenants can impact the financial stability of the property. Lenders may require sales data to assess tenant health and the property’s ability to generate consistent income.

    Lenders evaluate the current and projected vacancy rates of retail properties, as well as the market’s ability to absorb vacant spaces. High vacancy rates can pose a risk to stable cash flows.

    The presence of anchor tenants is often a significant factor in retail property financing. Anchor tenants attract customers and smaller retailers, enhancing the overall value and stability of the property.

    The potential for adaptive reuse or redevelopment of retail properties can influence financing decisions. Properties that can be easily converted to other uses may be seen as less risky.

Mixed Use

  • Mixed-use properties integrate residential, commercial, and sometimes retail or office spaces, generating multiple revenue streams. Valuing these properties is complex due to the variety of spaces involved.

    Lenders need to account for the distinct market values, rental rates, and capitalization rates for each use category. Financing new mixed-use developments often incurs higher construction and development costs due to the intricacy of combining various uses.

    Effective management is essential for mixed-use properties because of the diverse nature of tenants and spaces. Lenders evaluate the demand for each component of the mixed-use property, considering market trends like the popularity of live-work-play environments, which can affect the property's appeal and viability.

    Occupancy rates and lease structures for each type of space (residential, commercial, retail) are crucial factors. Mixed-use properties can also provide risk diversification, with downturns in one segment (e.g., retail) potentially offset by stability in another (e.g., residential).

Medical Office Building

  • MOBs are specifically designed for healthcare services, requiring specialized facilities like examination rooms and diagnostic areas, which can increase construction and renovation costs.

    Tenants in MOBs, such as doctors, clinics, and healthcare providers, usually have long-term leases due to significant fit-out investments and the critical nature of their services, providing stability attractive to lenders.

    MOBs must comply with various healthcare regulations, including ADA requirements, medical waste disposal, and patient privacy laws, which lenders evaluate during the financing process.

    The interior build-out for MOBs is often more costly than standard office spaces due to the need for specialized medical equipment, advanced HVAC systems, and enhanced electrical and plumbing systems.

    There is generally strong and consistent demand for healthcare services, resulting in lower vacancy rates and more reliable income streams. This demand is relatively inelastic, as medical care remains necessary regardless of economic conditions.

    Healthcare providers typically have strong credit profiles due to the essential nature of their services. Proximity to hospitals, healthcare hubs, and densely populated areas enhances the attractiveness of a MOB.

    Lenders consider location and accessibility as critical factors in financing decisions. Managing a MOB is more complex than other commercial properties due to the need for specialized services, such as medical waste disposal and infection control. Lenders also evaluate the management team’s experience and capabilities.

Land

  • The entitlement process significantly enhances the value of land by securing the necessary approvals and permits for development. Lenders prioritize the status and completeness of these entitlements, assessing their influence on the land's potential and value.

    With entitlements in place, development risks are lowered since zoning, environmental, and regulatory challenges have been addressed, increasing lender confidence in the project's feasibility and success. Due to its readiness for development, entitled land is more marketable and in higher demand. This appeal to developers and investors can affect loan terms and availability.

    Lenders often offer higher LTV ratios for entitled land compared to raw or unentitled land, enabling borrowers to obtain more financing based on the land's increased value. Lenders also closely review the development plans for entitled land, considering the proposed use, project timeline, and expected ROI. Well-developed plans can improve financing options.

    Financing entitled land typically involves specialized lenders who understand the complexities of land development and can provide tailored solutions. Lenders perform thorough due diligence on entitlements, verifying all permits, approvals, and regulatory compliance to ensure the land is fully ready for development.