Increasing the Odds in Retail Loan Roulette

Small retail properties support the needs of modern life, from eating to dry cleaning to movie rentals. Shoppers can cash a check, pick up a prescription, get their hair styled or buy flowers at such stores. Indeed, strip malls and freestanding outparcels have become embedded into the landscape as the archetypal backdrop of our daily routine. Although these stores are often ubiquitous and generic by design, they are not equal in the eyes of lenders.

Owners, caught up in the frenzy to lease their properties, often lose sight of how lenders will view their decisions. Keep in mind that lenders require detailed information about lease terms and rates, tenant financials, demographics and a variety of other factors before they agree to mortgage financing. Small retail real estate loans usually total $5 million or less, and borrowers can increase their chances if they know what issues are typically of concern to lenders.

For example, lenders may accept some irregularities in a deal if the owner is an accomplished borrower with a substantial retail portfolio. However, if the landlord has no track record, the lender will put more emphasis on location fundamentals and lease dynamics.

A key piece of information is a demographic study of the location. What are the traffic patterns? What is the income level in the surrounding community? Who is the competition? Does the location have any special features that could hurt or help business? For example, a shopping center might be the only stop between a business park and a residential area, meaning workers will stop by for bread, prescriptions, haircuts or car repairs.