CPN - March 2009 - (Page 20) INDUSTRY PULSE ALTERNATIVE FINANCING Padilla said. One source reported that such commercial real estate lending stalwarts as Nationwide, Allstate and Aegon have exited the field, at least temporarily, though other insurance companies have stepped up to the plate.Allianz, for instance, is actively lending, Padilla said, and British giant Aviva recently announced that it has committed $500 million to commercial real estate lending. RETAIL BUYERS FOREGO LENDERS Retail transactions are perhaps the most difficult to finance in today’s capital-constrained environment, and investors are increasingly using seller financing to get deals done. Sellers have an interest in getting these deals across the finish line, as cap rates are rising on retail properties, noted Faris Lee Investments president Richard Walter. For clients that want to sell properties but are unable to obtain existing assumable financing, Faris Lee has developed an alternative. As underwriting criteria become increasingly conservative, low amortization negatively affects cash-oncash returns to potential buyers, which in turn effectively lowers the sales price, Walter explained. With Faris Lee’s synthetic interest-only loan,sellers deposit funds in escrow for the buyer to draw on for principal reduction, effectively making the loan interest only from a cashflow standpoint, he said. Conventional seller financing can offer benefits to both sides. It can be attractive on some deals from which more traditional lenders are shying away—such as land, empty industrial buildings and office buildings with significant tenant rollover—according to Pacific Coast Capital Partners L.L.C. vice president Jed Lassere. In addition, “the buyer doesn’t come to an agreement and then come back to the seller in 30 or 60 days and say, ‘Sorry, but we couldn’t get financing,’” Schwartz said. Buyers also can frequently obtain better loan terms from sellers than from other financing sources, he added. On one recent acquisition, for instance, Strategic Storage obtained seller financing at a 50 percent loan-to-value ratio for five years, with 5 percent interest for three years, a pay-down component in the third year and a Continued on page 26 ® To read about identifying financing and investment opportunities, visit www.cpnonline.com/search and enter “novel ways” in quotation marks. A Year to Think Small Now that lenders are risk averse, many are reluctant to finance big transactions, but smaller deals are still being completed. Robert Dodge, senior loan officer for Southland Economic Development Corp., predicted that 2009 will be a good year for Small Business Administration 504 loans because they require borrowers to put only 10 percent down. Borrowers must be business owners who want to buy or build properties to house their businesses, and owners must occupy 51 percent of each building. The remaining financing is typically provided by other sources, as much as 50 percent of the project’s cost by a traditional lender and 40 percent from a certified development company, a non-profit corporation set up to contribute to the community’s economic development. The United States hosts 270 such companies, each covering a specific geographic area. The loan is attractive for a bank to do, Dodge said, as it stimulates job creation within the community. And if the property is liquidated, the bank’s risk is limited to 50 percent loan to value. Smaller deals are also easier to finance using all cash. Contributing a large amount of equity was frowned upon two years ago, but Strategic Storage Trust Inc. has made buying assets with cash its favored approach. Seller financing is next in line, and obtaining financing from banks with which it has a relationship is now its third avenue, as bank financing may be good for just three years and refinancing may then still be difficult to obtain, said chairman & CEO Michael Schwartz. For his firm, whose assets tend to trade for between $5 million and $10 million, all-cash transactions have advantages. “It gives you flexibility,” he said. “As far as lenders go, we don’t know when we’re going to see the light.’’ Have you or your company recently received coverage in Commercial Property News? announces the sale of Riverside Commons www.cpnonline.com Borrower’s Motto: Be Creative __page 18 Net Lease Players Pair Off page 20 U.S. Investors Dream of Dubai __page 25 The Commercial Real Estate Authority September 2008 a six-building thirteen-acre campus in Irving (Las Colinas), Texas to RESEARCH IN MOTION What’s Your Next Move? Can Previous Cycles Still Provide Insight to Succeed in Tough Times? page 16 NASDAQ: RIMM, TSX: RIM for its U.S. Headquarters Westmount Realty Capital, LLC 1401 Elm Street, Suite 4400 • Dallas, Texas 75202 214.944.5454 • www.westmountrc.com Place your press directly inin the hands of Place your press directly the hands of those who matter most—your customers those who matter most—your customers and prospects with custom reprints from prospects with custom reprints from Commercial Property News. CommercialProperty News. The YGS Group is the authorized provider of custom he YGS Group is the authorized provider of custom reprint products from Commercial Property News. reprint products from Commercial Property News. 800.290.5460 I cpn@theYGSgroup.com 20 COMMERCIAL PROPERTY NEWS • March 2009 • www.cpnonline.com http://www.cpnonline.com/search http://www.westmountrc.com http://www.westmountrc.com http://www.cpnonline.com
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