Banks are cracking down on borrowing against commercial
property, what can you do as an investor to prepare for these new
Traditionally it has been relatively easy to borrow against
commercial property provided you had good equity and a solid rental
stream from the building, however times appear to be changing as
the banks look to strengthen their balance sheets by increasing
deposits and pulling back on lending on commercial property as they
meet or near the limits of their lending in this sector. A number
of the banks are either no longer taking on new commercial property
business or are becoming extremely selective about the quality of
the new business they take on. In some instances, it may even be
difficult for existing clients of a bank to obtain further
It seems to us that, in order to obtain finance for commercial
property investment or development, you are going to need to
provide a compelling and legally tidy product to the bank to
consider. Banks will most likely not be interested in deals which
have any fish hooks or some of the risks associated with lending
that they have previously been prepared to accept. This will mean
that you will need to ensure the end proposal to the banks is
thorough, complete, meets the banks criteria and is provided to the
bank in sufficient time to enable them to make a decision.
When looking at entering into a purchase agreement or
commencing a development, we would suggest that you engage with
your bank very early in the process to: understand whether they
actually want to look at the proposal; and
if so, clearly understand the bank's requirements or
conditions of lending, and their pricing for providing the funding
as this may have changed since you last dealt with them.
This will then give you an idea of what you need, and how long
it will take, to satisfy their requirements. For example:
if the bank requires an engineering report and/or a valuation
before committing to providing finance, then you will need to
request an appropriate due diligence period in the purchase
agreement to allow enough time to get those reports. You should
also be liaising with the engineer and valuers early to ascertain
their current turn-around times for such reports;
if you are contemplating a new development, you will need to
ensure that you have all the required consents in place, and that
the level and quality of your pre-sales or pre-leases meet all the
If the bank's advice is that it isn't able to lend as
much as you had hoped, then finding out this bad news early will at
least give you a chance to re-scope your proposed development or
make alternative funding arrangements.
We would also be suggesting that you liaise directly with us
early to review all the legal documents associated with the
property and (hopefully) fix issues that might be found. We will
also be able to liaise with your bank to discuss any concerns or
requirements that require resolving.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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