Industrial loft conversion funder meeting question

Buying & Selling Real Estate
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Industrial loft conversion funder meeting question

Jason L.
Member since 2024 · 8 posts · 8 votes

I’m currently putting together a deal to buy an old industrial building and convert it to four loft apartments. It’s going to require some capital to make it happen, and the architect I found for the project collaborated with me on a budget of 1.1 million dollars in cap ex. I’m planning to move into one of the units and rent the other three. The rent from the other three units should cover almost the entire mortgage. My payment will hopefully by my calculations be less than my current low mortgage on my duplex.

My first meeting with the local bank went well and they’re connecting me with their commercial lending dept. I had a five page write up on the project for the first meeting. What should I bring to the next meeting? I want to be prepared.

My brother who owns a realty company came along last time which helped and I think the architect’s bio helped as well.

https://www.kent.edu/caed/sung-ho-kim

Any thoughts on what I can expect and how to look prepared would be great!

Thanks

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  • Henry ClarkPro Member
    Developer · Member since 2020 · 4k+ posts · 4k+ votes
    4d

    OP don’t know what was in your package.

    Bankers like to know risk impacts. Use your base deal analysis then do variations.

    1. $100,000 cost overrun.

    2. 1% point higher interest rate.

    3. Rent rate reduction

    4. Vacancy

    Show cash flow coverage of P/I and break even cashflow.

    What are your key issues still open?

    1. Zoning

    2. GC

    3. Parking

    4. Fire sprinklers

    5. Foundation or structural

    6. EPA

    7. Etc. Address those.

    Tell him the bank term sheet you’re looking for. Construction loan interest only. 18 month rent up interest only

    Insurance-

    Property tax-

    Cost segregation? Only if your REP. Have invoice line items segregated by asset type to do early writeoff.

    Basically show the banker your looking at Risk management.

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  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
    4d

    Jason, for the next meeting I’d go in prepared to show the bank not only why the finished project works, but how you get safely from the industrial building you’re buying today to four completed, rentable units.

    With a $1.1M renovation budget, I’d expect the commercial lender to spend a lot of time on the construction side. I’d bring the architect’s plans, detailed project budget, contractor estimates if you have them, expected timeline, zoning/use confirmation, permit status, and a meaningful contingency for overruns.

    I'd also have the stabilized numbers ready. Show what you realistically expect the three rental units to produce, supporting rent comps, operating expenses, projected NOI, and how comfortably that income supports the proposed debt. Since you're planning to occupy one unit yourself, I'd keep that clearly separated from the rental-income assumptions.

    The bank will probably care a lot about your own liquidity too. Even if the completed project looks excellent, they’ll want to know what happens if construction takes six months longer or costs 10–15% more than expected.

    I’d also be ready to explain the exit. Are you planning to keep the original construction loan, refinance once the property is stabilized, or move into permanent financing after completion? Showing that path makes the project much easier to understand from the lender’s perspective.

    From the tax side, I’d start planning the cost tracking now. With a conversion this large, separating building acquisition cost, renovation categories, personal-use versus rental-use portions, and depreciation basis from the beginning can save a lot of cleanup later.

    Feel free to DM me, I’d be happy to send over our Commercial Property Analyzer and a few tax-planning resources that may help you prepare the financial side before the next lender meeting.

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  • Jason L.
    OP
    Member since 2024 · 8 posts · 8 votes
    4d

    Those are all great ideas. Thank you. I’ve got some homework.

    0Reply
  • Christopher Pettis
    Member since 2023 · 1 post · 0 votes
    1d

    Congrats on getting this far, that's the hard part. For the next meeting, the things commercial lenders actually dig into: a real sources and uses breakdown (purchase price, the $1.1M cap ex, soft costs, a contingency line, and where every dollar is coming from including your own cash), and a cost estimate that's backed by an actual GC bid or two, not just the architect's number. Underwriters trust contractor pricing a lot more than a design budget this early, so if you don't have bids yet, get at least one before you walk in. They'll also want a simple pro forma on the three rented units against your full debt service (not the reduced payment after you move in), and they'll ask hard about the path from industrial to residential zoning and occupancy since that's usually what actually kills these conversions if it's not locked down. Sounds like a solid project, good luck with it.

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  • Jason L.
    OP
    Member since 2024 · 8 posts · 8 votes
    13h

    The good news is that the building is already zoned residential. I think that’s part of the reason the owner has had a hard time selling it. It’s right in the middle of a neighborhood. The huge amount of cap ex it needs is the other reason.

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  • Divin KanyamaBusiness Member
    Accountant · Seattle, WA · Member since 2025 · 301 posts · 95 votes
    13h

    You are already approaching this well, @Jason L. . For the commercial lending meeting, I would bring a lender-ready package that makes the project, the budget, and the repayment plan easy to understand.
    Include the purchase contract or proposed terms, your five-page project summary, architectural plans or concept drawings, zoning and permitting status, the architect’s qualifications, a detailed $1.1 million construction budget with a contingency, contractor estimates if available, and a realistic construction timeline. I would also prepare a sources-and-uses schedule showing the purchase price, closing costs, improvements, professional fees, reserves, your equity contribution, and the requested loan amount.
    The bank will likely focus heavily on the completed property’s economics. Bring projected rents supported by comparable units, operating-expense assumptions, a stabilized income statement, debt-service coverage calculations, and both “as-is” and “as-completed” value estimates if available. Be prepared to provide personal financial statements, tax returns, liquidity documentation, credit information, and details about your current duplex and other obligations.
    Expect questions about zoning approval, change-of-use requirements, environmental issues, construction draws, cost overruns, lease-up timing, and your backup plan if rents are lower or construction takes longer than expected. Because you plan to occupy one unit, also ask the lender how that affects the loan structure and whether the project will be underwritten entirely as commercial.
    Having your brother and architect involved adds credibility, but the strongest impression will come from showing that the numbers have been stress-tested. A clear contingency reserve, conservative rent assumptions, and a realistic plan for covering debt service during construction and lease-up will make you look prepared rather than simply optimistic. Before moving forward, it would also be wise to have the ownership structure and tax treatment reviewed, since converting an industrial property to residential use can raise depreciation, cost-allocation, and local tax considerations.

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