Commercial Property Investment Insights

The commercial property sector has seen some signs of life again in early 2021 following the depths of the COVID-19 pandemic during 2020. Although uncertainty around the property market and wider economy as a whole still exists, investors are back in the market for quality commercial investments and are looking to take advantage of record low interest rates.

While investors are showing increased interest, lenders are still weary – the big banks in particular. Second tier lenders and specialist financiers have continued to support this space over the past 12 months and remain supportive.

What we have seen first-hand is the large variance in loan options provided by the various lenders. From interest rates to gearing through to servicing requirements, the gap can be significant and at the end of the day, the difference between someone securing an asset or not.

To provide some clarity around these discrepancies, we have outlined some current examples of what is available from lender to lender.

• Interest Cover Ratio – Multiple of 1.65 times interest up to 2.5 times interest cover
• Assessment Interest Rate – Actual rate payable vs sensitised rates that include buffer margins up to 2%
• Loan Value Ratio (Gearing) – 50% up to 80% LVR’s for commercial property
• Interest Rates – Many factors can impact the pricing provided by lenders, in particular the points above. However, we have recently received rates from lenders at below 2% for commercial investments but have also seen them in the mid 5% range (when compared to traditional lenders ie. major and second tier).

Other factors that go into consideration for the lenders when assessing your loan application include location of the asset, loan size, quality of the tenant, weighted average lease expiry (WALE) for multi-tenant assets, concentration risk, etc.

What is important to understand is that when you invest in commercial property, every single transaction will be assessed on its own merits and due to the many variable factors being assessed within your application, it can be difficult to know where you stand unless you have someone who understands the intricacies of the lending requirements to guide you. An experienced broker can help you navigate this minefield and provide the guidance you need to obtain the best possible loan for your next investment.

For guidance on commercial property investment, contact Duo Finance today.