Given the tough financing market, a
number of borrowers are opting for
other alternatives. Some buyers, for
instance, are choosing to purchase properties all-cash. Investors, such as REITs,
are looking to lines of credit to pay for
acquisitions as a viable option until the
capital markets stabilize. And others are
simply seeking out debt sources that
aren’t traditionally involved in single-tenant net-lease deals.
Take Mesa West Capital, for instance.
The Los Angeles-based company is primarily focused on providing bridge loans
for value-add deals. But principal Ryan
Krauch reports that owners of single-tenant properties who are looking for an
alternative source and/or type of capital
to meet their needs are now contacting
the firm. “More and more people are
coming to us,” Krauch says, “simply
because they cannot get financing
through avenues they typically use.”
In mid-June, he reported looking at a
single-tenant office asset in the LA market. The property has a
long-term lease in place but the existing financing is coming
due. The owner has three years left on its target hold period
and doesn’t want to take on longer-term financing, so it’s looking at a potential bridge loan as an alternative solution, Krauch
Small, single-tenant retail properties, such as those occupied by Starbucks, in secondary and tertiary
markets are more likely to be financed by local and regional banks. Marcus & Millichap Capital Corp.
says it has closed a number of these deals in recent months.
explains. He speaks of a similar situation involving a property
in Northern California. The existing loan is coming due, but
the owner does not consider it a favorable time to lock in new
10-year financing. A one- or two-year bridge loan is being considered as a means of buying time before having to refinance.
“The long-term loans simply aren’t available now, or they’re not available on
terms the borrowers consider favorable,”
Of course, it isn’t just the players and
types of debt financing that have changed;
pricing and terms have been altered significantly since a year ago. “What you’re
seeing is a major shift in underwriting and
a tightening of parameters,” says Stan
Johnson Co.’s Akeman.
Interest only? You can pretty much
forget about it. If your deal is exceedingly good and with very low leverage,
you might be able to eke one or two
years of IO out of a relatively aggressive
lender, say market experts. However, the
days of five- and 10-year interest-only
periods are a thing of the past.
High loan-to-values? Not likely.
Depending on who you ask, the numbers vary a little, but the general consensus is life companies are willing to
provide loans with between 50% and
65% leverage, with banks in the same
range but possibly willing to go as high
as 75% if the borrower and the deal are
strong enough. The more marginal a
deal, the lower the available leverage is
likely to be.
“In the current market with lenders
being generally risk-averse, the costs
allocated to expenditures required in a
case of default end up eating into the