Is getting bank financing on vacant building a thing?

9 Replies

I am a long time residential investor transitioning to commercial real estate. I purchased 3 office/retail buildings in the past 2 years that were vacant or nearly vacant and turned them around with such good success, I may never buy a single family home again.

I finance the acquisition + rehab with my private lenders (I offer 10% interest) then refinance with my commercial lender which is a small bank.

I was recently a guest on a commercial real estate podcast and after hearing about my experience, the host said I need to get away from private money at 10% because I should be able to find a small bank to finance the acquisition even if vacant closer to 4%.

The 2 commercial bank lenders I often use did not seem interested until the building had some stability so I figured vacant buildings could not get bank financing off the rip.

The host of this podcast said he does it often I just need to find the right bank.

I plan to make a lot of phone calls this week to commercial lenders but are other investors getting bank financing in these situations?

You’re both right.  I’ve bought a couple vacant commercial (office and retail) buildings.  I’ve found a limited number of banks willing to lend on a pro-forma.  However they are out there.  My biggest successes are banks that are trying to expand in a particular market.  I have a bank that was looking to expand in 2010 that would lend on a pro-forma but now does not.  Also, obviously they won’t approve a loan for the full stabilized value but you wouldn’t be paying that much anyway.  Sounds like we found a simile niche.

Originally posted by @Greg V. :

You’re both right.  I’ve bought a couple vacant commercial (office and retail) buildings.  I’ve found a limited number of banks willing to lend on a pro-forma.  However they are out there.  My biggest successes are banks that are trying to expand in a particular market.  I have a bank that was looking to expand in 2010 that would lend on a pro-forma but now does not.  Also, obviously they won’t approve a loan for the full stabilized value but you wouldn’t be paying that much anyway.  Sounds like we found a simile niche.

 Great info!  The host of that podcast suggested small banks in the same city as the subject property if possible. Do you look for banks this localized or venture out ?  Also - what is your strategy for getting the bank to know and trust you? I wrote up a short elevator pitch speaking about how I have years of experiencing turning around distressed real estate. I planned on sending out a bunch of emails but would it be better to call and request to speak with the commercial lender?

Sometimes I feel like laying my experience and plans out on paper via email can rely info better then on the phone.

The bank I started with was in the local area.  I think they had like 3 branches in  2010 and then took over 2 failing banks and grew.  The one I just went with on 2 properties is in an adjacent city that is 20 minutes away.  They understand the local market and the expected rents and want to grow.  They also offered me 3.5% on a 5 yr fixed versus 4% at other banks.  In fact my new loan officer was one that declined the loan 10 years ago when he was at a much more conservative bank. It was easier for me to get to know most loan officers because I grew up in the area and either they knew me or my family.  My family are basically all farmers so many of banks already had loans with my immediate or extended family.  

For our community, it would be better to meet in person.  It would be even better if you were referred by an active commercial broker.  If you can convince a reputable and active commercial broker that you know your stuff and are committed to investing in the area, then the loan officers should be easy.

@Adam Craig this is where you should work with a commercial mortgage broker.  If anyone has the connections, they would know.  If a ground-up development deal can get funding, there's no reason a vacant building with a solid lease-up plan, and someone with a history of completing these deals shouldn't be able to find funding. I'm sure some of the brokers in my network may be able to assist.

Originally posted by @Greg V. :

The bank I started with was in the local area.  I think they had like 3 branches in  2010 and then took over 2 failing banks and grew.  The one I just went with on 2 properties is in an adjacent city that is 20 minutes away.  They understand the local market and the expected rents and want to grow.  They also offered me 3.5% on a 5 yr fixed versus 4% at other banks.  In fact my new loan officer was one that declined the loan 10 years ago when he was at a much more conservative bank. It was easier for me to get to know most loan officers because I grew up in the area and either they knew me or my family.  My family are basically all farmers so many of banks already had loans with my immediate or extended family.  

For our community, it would be better to meet in person.  It would be even better if you were referred by an active commercial broker.  If you can convince a reputable and active commercial broker that you know your stuff and are committed to investing in the area, then the loan officers should be easy.

So far I have gone without a broker but do understand the importance of having one and what you mentioned just adds to that need. There are so many in the area - do you have any tips on which ones I might have best luck with?

I know the bigger ones likely have quite a few relationships with bigger guys then me they feed deals to first so maybe call the younger guy on staff?

Originally posted by @Scott Wolf :

@Adam Craig this is where you should work with a commercial mortgage broker.  If anyone has the connections, they would know.  If a ground-up development deal can get funding, there's no reason a vacant building with a solid lease-up plan, and someone with a history of completing these deals shouldn't be able to find funding. I'm sure some of the brokers in my network may be able to assist.

So far I have gone without a broker but do understand the importance of having one and what you mentioned just adds to that need. 

I know the bigger ones likely have quite a few relationships with bigger guys then me they feed deals to first so maybe call the younger guy on staff? I would be happy for a referral if you think you have someone in the Cleveland Market.

I would go on LoopNet and find properties of the size and location that you’re looking for.  I would look at both properties for sale and for lease. Then see who has the listings.  I would first contact the person who has the most listings and if that person doesn’t work out then work back to who has the least.

Adam, thinking of your lender as a business partner is also quite valuable.  I have been with the same small lender for almost 15 years and they will finance anything I bring them at the same terms.  It did take a few deals for them to learn what I do and get comfortable with some of my riskier deals.