Commercial Loans

If you are new to buying commercial property then there are a range of things to consider. This is very different from buying a home or a condo. If you have experience with commercial purchases, then the following will be a reminder of what to look for and areas to consider when you go to purchase.

The first thing to realize is that there are no pre-approvals on commercial property. This means that your offer should be conditional on financing, at the very least.

The lender will require that the property meets a number of terms and conditions in order to finance the deal. The lenders conditions should guide you both in your inspection of the property and in budgeting to get the professionals in to confirm that the building can meet these conditions. In your offer make sure you give yourself enough time to get the work done to ensure that you can close the deal. Talk to your purchasing agent for another perspective and suggestions. If they are experienced with this type of property they should be able to help you understand what you are up against. These requirements will also help you determine if this is a property that you want to own.

About Financing

There are generally two tiers of lender for commercial those that fund $200,000 to $1,000,000, and those that will do over a million. If you require funding at a significantly higher level, e.g. $20 million then we will need to discuss these cases more specifically.

The more you are able to put down the happier you will be with the terms offered by the lenders. Consider 35% as a minimum for most deals. Each deal is different so do not hestitate to ask.

Talk to your accountant about the best way to fund and structure the purchase to be able to maximize tax savings, for example buying through a numbered company.

Broker Terms and Fees

I will ask you to sign an agreement that I am working for you exclusively for the financing of your deal.

There will be a minimum fee of 1% for commercial files payable on closing.

Some lenders compensate the brokers in which case the purchaser will only be charged the difference, if any, between the lender compensation level and the 1%. The reason for this is that these types of loans are very complicated.

I will work hard to make sure that everything possible is done to make the deal happen from the funding side. I will keep you informed all through the process so that there are no surprises.

About the building

Things to consider and may be required by the lender.

What is the condition of the building?

• What is the age and general condition of the building?
• Does the roof need repairs?
• How old is the heating system?
• What type of heating does it have?
• What type of wiring does it have and is it up to code?
• What is the size of the retail and/or residential space?

What are some of the regulatory issues to consider?

• Are there any outstanding work orders on the property?
• Are there any environmental issues with the property?
• Has the municipality or other body put restrictions on the usage of the space because of previous infractions? e.g. LLBO licensing limits, complaints from neighbours leading to restrictions on usage, etc.
• Does the retail space offer handicap access?
• Does the property meet fire code? e.g. number of exits, etc.

• Documents on expenditures showing what was spent on maintenance and when.
• Information on tenants and if they have a history of paying rent on time, e.g. post dated cheques.
• History of vacancy (if possible)
• Copies of the leases
• Property tax
• Zoning (also check this with the city/municipality)

There will be many tasks that borrowers are asked to handle at their own expense to meet the conditions for financing. In some cases, the following tasks will be required but performance of the task does not guarantee financing as the task itself may uncover deficiencies. When these tasks are required, the cost is non-refundable, so be prepared for the expenses as up front costs. These tasks will also highlight defects in the building that will also help you decide if the purchase is still worth it.

• A full inspection.
  - I would recommend you use a qualified engineer with commercial property experience, but some lenders will give youa list to choose from.
• A full appraisal.

- One quick and easy first step, for your own purposes, is to get your real estate agent to get you five comparable properties sold in the area in the last year or so.
• Environmental assessment.
• Make sure the property is fully insurable, fire, flood, everything.

Please give me a call if you have any further questions and I will be happy to work with you.