Commercial Real Estate lending in Australia

Commercial, industrial and retail lending for real estate has been slowed by lenders all over Australia. In the past few years since the financial crisis of 2008, the lenders in Australia have made lending on commercial property difficult for potential buyers and investors. When referring to commercial lending this also includes industrial and retail lending.

Speaking with some of my past finance broker colleges I asked their thoughts on the approval process for commercial property, the reason for the slowdown of Commercial lending, and how best to find a lender who will lend for commercial and industrial property.

Their thoughts centred on;

– There is nothing standard about commercial loans,

  • What is the reason, investment, development or occupation?
  • What is the thinking of the economists with in the bank about that sector?
  • Is it capital city based or regional?

– The information a lender needs is far greater for Commercial and Industrial property and includes;

  • the size of land and buildings
  • the age of the building
  • building lay out and plan,
  • the outgoings of the property
  • Is the building is leased and the lease duration
  • the time left on the lease
  • what options are with the lease
  • What can the zoning be used for
  • What is the vacancy rate for that area
  • How long will it take to find a tenant

All this information is available through well trained Commercial Agents and should come with the Information Memorandum (IM) for the property.

The main question will centre on the DEPOSIT. This will be used by the lender to calculate the LOAN TO VALUATION RATION (LVR). Each lender has LVRs’ for differing commercial / industrial / retail property sectors. This rate has been lowering thus meaning the lenders are exposing themselves to less risk. If at all!

My colleges from the financial industry have found large differences in LVRs’ between lenders. From those who just won’t lend for commercial property to averaging between 55% & 60%. It was at a high pre GFC of 75% average.

A strange phenomenon is arising and that is of the (BDMs) Business Development Managers with in the lenders. These BDMs have strict hurdles when assessing Commercial Property in their areas. Whilst you may not qualify for a loan in one BDMs area brokers will take it to the same lender in another area and gain approval.

So the tip is – lending is freeing up for Commercial Property and if you have all the required information from the start don’t give up spread it around and don’t rely on one lender or quote.

Bret Ballantyne
Commercial & Industrial

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