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With a real estate market worse than anyone has ever seen in their lifetime, people should consider what property types lenders are still anxious to lend on. Banks and non-bank lenders have limited funds and are looking for specific property types to lend on. The financial market is not only affecting the real estate market, but we are also seeing the auto industry struggling, the stock market struggling, insurance companies going out of business, etc… Lenders need safe investments.
Commercial real estate is typically classified as multi-purpose or special purpose. A multi-purpose property is typically considered as office, retail, some light industrial and warehouse. These building types can be used for many different tenants. Attorneys, CPA’s, Insurance companies, etc… could all use a similar space. Special purpose buildings are buildings that can only be used for one for a specific business type such as restaurants, hotels/motels, car washes, etc… You can only replace a restaurant with another restaurant, or a hotel with another hotel. Otherwise you would have to do extensive remodeling to change the tenant, and that would be very expensive for a lender to do if they needed to take back the building.
Still, many buyers want to purchase a special purpose building because they can get a great deal. The problem is, that most lenders in this market will not lend on these properties and if they do, the rate will be extremely high and the terms are usually much worse. Some businesses cannot avoid the need for a special purpose building, and in those cases consult with a trusted mortgage broker for a list of possible financing alternatives.
In a market such as this one, a buyers safest purchase is a multi-purpose building. This is not to say that there are not great opportunities in purchasing some special purpose buildings, but multi-purpose buildings will be the easiest to finance with the best rates and terms.