Posts Tagged ‘commercial real estate’

Refinancing Mortgages on Commercial Real Estate

Thursday, October 27th, 2011

The Small Business Administration has eased the rules for its 504 loan program to facility refinancing. For the first time, small businesses can use this loan program to generate working capital. Chris Hurn of Mercantile Capital Corporation, an SBA lender in Orlando, Florida, said the new opportunity to refinance will help owners turn their real estate equity into working capital.

The SBA’s 504 loan program is a long-term financing vehicle made through a Community Development Corporation, which is a private, nonprofit corporation which is set up to contribute to economic development within its community. Usually, there is a first (senior) loan for 50% of the cost of the project. Then the 504 loan can provide up to 40% of the cost of the project; the 504 loan is 100% guaranteed by the SBA. In effect, the small business borrower only has to come up with 10% of the cost of the project.

The program can be used to buy or improve realty or long-term machinery and equipment. Until now, the program could not be used for refinancing. However, under a temporary program set to run through September 27, 2012, the program is available for the refinancing of a commercial mortgage that is more than two years old. Under a rule adopted on October 12, 2011, borrowers can finance up to 90% of the appraised value of available collateral, which could include fixed assets acceptable to SBA, such as commercial real property. This allows borrowers with more than 10% equity to be able to obtain additional proceeds to pay for eligible business expenses.

Under the 504 loan program, repayment is made over 20 years. There is no cost to the borrower for refinancing. The current interest rate is 4.69%, an all-time low.

Negotiating for Retail Space

Thursday, October 8th, 2009

The Wall Street Journal reports that vacancies in retail space in the U.S. now top 10.3% (up from 8.4% a year ago). What does this mean to small businesses looking for space or those already in malls and shopping centers with leases coming up for renewal? It’s a renter’s market.

As retail lease rates continue to decline and the near-term outlook is more of the same, tenants can pick up space at bargain rates.  Tips to keep in mind include:

For new leases:  After determining where you want to be (consider working with an architect to make sure the desired space will meet your needs so you don’t rent more space than you actually need), negotiate with a landlord to obtain the most favorable terms. In this market, some advantages a tenant might achieve:

  • Low rent. Find out the “going rate” for the space you want; then negotiate a lower rate in view of the declining rents and growing vacancies.
  • Free rent for some period. In very distressed areas, a year of free rent is possible.
  • Improvement allowances. Landlords may pay for a certain amount; obtain favorable terms here. In the very least, the landlord should pay for any improvements (e.g., widening doors, etc.) necessary for compliance with the Americans with Disabilities Act.
  • Early access. You want access (two to three weeks) to your space before the term of the lease begins so you can get phone and IT hookups in place.
  • Rent increase caps. Typically, rents escalate over the term of the lease (usually in line with CPI increases). Try to avoid any increases for at least the first two years.
  • Renewal terms. You want the ability to remain in the space if your business is going well. Try to get a renewal rent amount now (not one based on the going rent that may be applicable down the road).

For renegotiations:  Start the process at least a year to a year and a half before the end of your lease. This will give you time to go back and forth with your landlord and, if renegotiations fail, to find new space before your lease is up.

While the commercial real estate market is very soft, landlords know that you’ve already invested a considerable amount in your space and are not eager to move. Recognizing this factor can help you achieve the new terms you want.

Work with a professional. Commercial leases are complex legal documents. Make sure you work with a knowledgeable attorney who can review the lease terms and protect your interests.