Industrial building refinances have some of the best financing options available in the market. This is a broad category and finance option very widely based on such factors as loan amount, owner occupied or investment, single tenant or multi tenant, etc. Environmental concerns slow lenders as the liability for contamination is high within this category.
LTV
Loan to values are often restricted at 75% on industrial building refinances and are normally capped at 70% loan to value on cash out refinances. Higher LTV's are available, but come at an increased price for the borrower. Lower loan to value requirements should be expected for industrial investment properties, normally reduced by 5% off the above.
DSCR
Debt Service Coverage Ratio restrictions are typically set at 1:1.2 for both investors and owner occupied industrial properties. Meaning that for every $1.20 of net income (income after taxes, insurance, repairs etc) the property/business produces, the mortgage payment will not exceed $1.00. Said in another way, after all expenses and the mortgage has been paid, the owner needs to net $.20 to qualify.
Some exceptions can be made with this rule on industrial refinances. For example, stated income loans can be an outstanding option for owners that have low debt coverage ratios due to either overstated expenses, current high levels of vacancy, or understated income.
Tenant Evaluation
Tenant evaluation is not as important within the industrial properties as others (like single tenant NNN properties) but still important. Lenders scrutinize the time left on the current lease(s) and other relevant information. Of particular concern on industrial property refinances is the time remaining on the current lease(s). For example on multiple unit properties, lenders prefer the lease expirations to be staggered and most banks/ lenders want to see at least 3 years left on the current leases. Some traditional banks will not allow the fixed period of the loan to exceed the time left on the lease.
Property Analysis
Market value and market rent is very important and will be evaluated and compared to the subject property. Environmental condition of the property will be heavily scrutinized. Phase 1 reports will be required. Age, appearance, location, accessibility, and local market conditions, as well as other factors are considered.
Credit Worthiness
The personal credit worthiness of the borrower will be considered. 680 credit score is normally the minimum for the best finance options. Exceptions can be made on this as well with some conventional lenders considering scores as low as 600 within this category. The overall strength of the property, tenants, DSCR, and LTV can offset concerns on low credit scores. For corporations, business performance and credit rating will be evaluated.
