You land a prime piece of investment
property. It’s the headquarters
you’ve been looking for, and after
years of paying rent, your business is in
the position to own a building. Better yet,
extra offices within the space have long-term tenants with no intention of leaving.
The situation seems like a win-win — but
what about the market? The property is
there, but is financing available to purchase it?
“The marketplace has creative, attractive terms for the prudent investor,” says
Steve Olsavsky, commercial loan officer
at Brentwood Bank. “There is still money
to lend, there are still projects on the market to invest in — there is still opportunity in the commercial real estate market.”
Not all banks have pulled back on
financing, says Olsavsky.
“There is a perception that there is no
money available in the market,” he says.
“Some smaller community banks can tailor financing needs for specific projects,
and they are looking to partner with
investors.”
Smart Business spoke with Olsavsky to
learn how business owners should
approach real estate financing today and
what to bring to the banker’s table.
What is the lending environment like in
Pittsburgh today?
What people are reading in the national
news is not necessarily true in the
Pittsburgh marketplace. For banks that
did not waver on credit standards, the
lending environment is cautious but hasn’t changed dramatically. Financial institutions that maintain conservative lending
standards and focus more on relationship
banking — partnering with business owners to supply not just one loan, but also an
entire suite of services — still have money
to lend. And they’re looking to back prudent investments.
Who is taking advantage of commercial real
estate opportunities?
Investors who are positioned to meet 20
percent down requirements on traditional
commercial real estate loans can take advantage of market opportunities, and
the real estate stock is plentiful. The same
goes for new construction projects. In this
region, projects are still moving forward
for investors who have the cash flow and
credit history to back them. Additionally,
investors who can find properties that will
provide steady cash flow, so long as borrowers meet today’s standards, should not
wait to ‘seal the deal.’ If you’ve been considering an investment property or
preparing to purchase real estate, now is
the time.
How does an investor decide if a property is
a ‘good buy’ in this market?
Investors hold real estate for different
reasons. Some want to realize an instant
return: they want the property to ‘pay
them’ on an ongoing basis through a rent
cash stream. Others plan to hold the property for 10 to 15 years and use it as headquarters for their businesses. They treat
the property like stock. What we are not
seeing in today’s market is ‘flipping,’ or
purchasing a property only to renovate it
and sell it immediately. As for determining
whether a property is a good buy, the
bank will prompt investors to evaluate these two factors: revenue flow from the
property versus expenses; and net operating income compared to debt service on
the property. That cushion should be at
least 1.2 times.
What should borrowers bring to the table to
secure a loan for investment real estate?
Banks will evaluate the project, and the
investor. Expect to infuse 20 percent equity into the project and adhere to conservative financing terms and conditions.
Before going to the bank, ask the property owner for a list of expenses spent on
the property. Get a list of revenue streams
from rent versus expenses over a two- to
three-year period. Will the property generate a favorable net operating income? Be
prepared to provide the banker with three
years of personal/business financial statements and tax returns. Banks will want to
know that there is plenty of cash flow and
collateral to back the loan.
Any final tips for business owners who are
ready to buy now?
Do your homework. Get a strong sense
of the property’s income potential, and
define your investment strategy: how long
do you plan to hold the property? What
are your goals? Is this a ‘home’ for your
business or a building you plan to lease?
Involve your banker in this planning. He
or she can advise you on creative lending
solutions and offer benchmarks to help
you determine whether the property is a
wise investment. Finally, do not halt
important business transactions, such as
buying a property. If you are prepared to
invest, and you have the equity to put
down and means to operate a building
successfully, the market is ripe with
opportunities. Approach a bank that
maintained conservative underwriting
policies who will partner with you.
Smaller, boutique banks often go out of
their way to accommodate good business
clients.
STEVE OLSAVSKY is a commercial loan officer at Brentwood Bank. Reach him at (412) 409-9000 or [email protected].
