Multifamily and Light Industrial Emerge as Hottest Asset Classes
Multifamily and light industrial have emerged as the hottest asset classes for commercial real estate funding post-pandemic, according to Dan Page, president of Boulder Equity Partners LLC, a nationwide lender for all commercial real estate loans.
“We see growth and security (stability) in these sectors and are willing to be more flexible as a result,” says Page. “Both sectors are commanding loan-to-value (LTV) up to 80%, compared to an average of 65% -70%LTV in other property types.”
While other asset classes, like retail and office, remain fundable, they are receiving a higher level of scrutiny due to underlying pandemic-related factors that have made them more vulnerable.
How to Get the Most Funding
Values on some commercial properties have fallen due to the pandemic. Where the net operating income (NOI) may have been healthy a year ago, the current NOI may not be sufficient to fund with many banks. This is leaving some investors out in the cold, particularly those currently attempting to rehab and lease-out properties to realize potential business income. But Page says there is a work-around, particularly within these strong asset classes.
“If current value and income are below pre-pandemic levels, that doesn’t necessarily need to limit the potential cash-out,” Page explains. “If the future growth potential is strong, an investor may be able to negotiate for an earn-out. Boulder Equity Partners can combine the 2019 NOI with the projected growth. Funds dispersed now would be based on current property value. But additional funds can be set aside and accessed as the value and NOI quickly increase in the coming months,” Page explains.
Approval of an earn-out (where additional funds can be accessed) is based on confidence that there is strong growth potential in the asset class as well as in the individual property. Factors like the borrower’s level of experience and willingness to invest in their own project go a long way toward satisfying the lender’s requirements. Page recommends borrowers seeking Commercial Real Estate loans advocate for their position.
“The best way to gain the lender’s trust is to tell the story,” Page explains. “A loan application and supporting documentation don’t always paint the picture for the lender. If the project has potential, point it out.”
As a nationwide lender for all commercial real estate loans, Boulder Equity Partners offers a wide range of loan programs, from low-interest long-term products, bridge loan programs that can be migrated to long-term, and hard money loans.