Heavy Competition for Industrial-Warehouse Loans

Chicago, IL, September 12, 2006 - The intense desire to lend on choice properties ultimately leads funding sources to industrial and warehouse properties. All types of assets in this class are sought including bulk warehouse, storage, distribution, incubator, flex (25% or more office space) and manufacturing buildings. Generally speaking, the most desirable properties are anchored by credit tenants.

These assets are typically newer (10 years or less), higher-ceiling (28 ft. clear or more) buildings located in well-established business parks. These properties are usually in proven markets with occupancy levels in excess of 90%.

Industrial loans are harder to find than some other property types. Newly constructed properties are often built-to-suit for owners; even more are already owner-occupied. These properties will usually be financed by owners via their business banking relationships. Finally, larger pools of industrial loans are rare -- leading to smaller loans per property.

Based on typical underwriting parameters, industrials capture the most favorable interest rates and dynamic terms including the following:

1) First Mortgage lien based 75-80% loan-to-value/purchase price
2) 90 to 110 basis points over comparable term treasury notes for Class A/Credit properties; up to 150 basis points for partially-leased, older and smaller properties (e.g., less than $5 million)
3) Take-out (forward-delivery) debt priced as low as two basis points per month (2-yr maximum)
4) Interest-only payment combined with 30-year amortization - even for older properties
5) Bundled closing costs combine third-party reports with discounted underwriting fees
6) Less differentiation between underwriting credit and non-credit occupied assets
7) Additional ’wraparound’ debt reaching in excess of 85% LTV at premiums of 200 basis points or more

Even though rates have been steadily climbing (particularly short-term, floating rate debt), long-term mortgages are very attractive in comparison to historical norms. Nat Zvislo, research director of the Real Estate Capital Institute suggests ’industrials stay in favor because of tenant-driven supply restraints. The shorter construction cycle keeps spec and pre-leased development activity nearly in tandem.’

Industrial-property rate information is available at www.ratesnews.com. Hourly rate reports are also broadcasted each business day by calling the Real Estate Capital Rateline at 7RE-CAPITAL (773-227-4825).

Contact Information

Nat Zvislo

Research Director

The Real Estate Capital Institute

Contact via E-mail