Alex Cohen, chief executive officer of Liberty SBF, reviews current trends in demand for warehouse and industrial space, and how owners are acquiring financing in difficult times.
Demand for warehouse and industrial space remains robust across the country, with continued rent growth and higher prices per square foot, says Cohen. The capacity crunch has been driven by the fallout from COVID-19, as well as a general rise in e-commerce activity over the past few years and resulting supply chain congestion.
The situation is especially acute near major port areas, such as Southern California’s Inland Empire region, which supports the ports of Los Angeles and Long Beach. The same is true for parts of the country that are close to ports along the East Coast.
Cohen sees a shift in the dynamic between end-users of industrial properties and real-estate investors, with the latter beginning to eclipse the former in bidding for space.
A further trend in the market is the changing nature of the warehouse itself. In addition to the traditional regional distribution center, which might take up a million square feet or more, there’s growing demand for smaller facilities located closer to urban centers. That’s another result of the e-commerce boom, as retailers look to meet customer demands for rapid delivery of orders.
At the same time, says Cohen, many developers are reducing the portion of their properties devoted to office space and increasing that which is intended for warehousing and distribution use.
Opportunities also exist to convert retail properties into warehouse complexes in major metropolitan corridors, even to the extent of turning entire department stores or malls into distribution centers. But developers can run into re-zoning problems as they confront issues of traffic, congestion and noise close to residential neighborhoods.
The Small Business Administration has been a major source of interest over the past 18 months, administering the Payment Protection Program loans that served as a lifeblood for many enterprises to guide them through the pandemic. But the expiration of the PPP does not mean the SBA has run dry as a resource.
The SBA has made some changes to a few of its loan programs that can be utilized by service center operators to take advantage of the red hot market for warehouse facilities in the commercial real estate sector.
Dating back before the pandemic, real estate values for industrial spaces have been among the best gainers, says Alex Cohen, CEO of Liberty SBF, a small business lending company. Such a dynamic creates an interesting opportunity for service center operators, many of whom own the land they occupy.
The current conditions lead to a number of questions, Cohen says. “‘How do I take advantage of assets I already own?’ ‘How can I grow if I need to?’ ‘What are the best options for a financing standpoint?’ ‘Should I be refinancing now?’ We’re having a lot of these conversations with those borrowers and intermediaries who are looking at those types of decisions looking to navigate the landscape today.”
Let’s get to the last question first. If refinancing is something an owner-operator is considering, Cohen says now is the time to pull the trigger. Two separate changes to the rules by the SBA have made refinancing particularly attractive.
Regarding the 504 program, Cohen says property owners can use an SBA loan to refinance debt, even if they have only owned the property for a short period of time. “If you get a fresh appraisal, and have equity, you can get a quick, low-cost financing vehicle to pull cash out. You can really take advantage of values going up without overextending yourself or having to sell the property.”
A more niche route, but one that is an outstanding opportunity for companies who qualify, is the change that allows companies to refinance existing government debt, a situation that never existed before. For instance, the SBA’s 7A program has historically been used as a high-leverage option in real estate, but it comes with a floating rate loan. With the new rule in place, companies can refinance from one SBA loan to another, switching out the higher cost floating loan to a fixed rate loan.
“We’re doing a lot of these refis right now. It’s really a no-brainer. You lower your monthly payment, you pull cash out, and all of your costs and fees get capitalized,” Cohen says.
Refinancing, of course, isn’t the only option on the table. And the SBA has worked to provide some new avenues for warehouse operators.
In addition to the refi element of the 504 program, the loan can be used to acquire real estate in the confusing market. Borrowers can finance up to 90 percent of the property with an SBA loan, compared with 65 to 70 percent LTV on a conventional loan. And it’s done in the confines of a low-cost, fixed-rate loan.
“If you’re purchasing real estate, especially in an environment where prices have increased significantly, it’s a way to reduce your cash equity injection into the financing because it’s only 10 percent down. It’s a huge difference compared with conventional financing, and it’s also relatively cheap compared with conventional financing.”
The solution also works for companies currently leasing properties, particularly in the face of increasing leasing rates. The availability of the 10 percent down aspect can help push the scales in the lease vs. buy equation.
How long this situation lasts is a question mark. With inflation percolating, the Fed will be looking seriously at interest rate hikes, which will put some negative pressure on asset prices.
“While we’re keeping our eye on inflation and keeping our eye on rates, you have a supply-demand imbalance with much stronger demand than supply for warehouse industrial properties. There aren’t many ways to take advantage of the value in that property,” he says.
One of the ongoing challenges faced by manufacturers is knowing when and how to invest in business real estate and related resources that can help keep the business competitive. One option is an SBA 504 loan. These loans are available to for-profit U.S. companies that have a net worth of less than $15 million and an average net income of less than $5 million.
These loans, which are regulated by the Small Business Administration are available from organizations like Liberty SBF. The company services 504 loans ranging from $1M to $15M, and has funded over $2 billion in loans to small and medium businesses with programs that offer significant cost and flexibility benefits.
To help get some clarity and advice on optimizing 504 loans, Manufacturing.net spoke to Liberty SBF’s Alexander Cohen. Watch the 5-minute video.
Liberty SBF just closed a $3.67 million loan for the acquisition of an industrial warehouse in Fort Lauderdale, FL. The Sponsors were approved for an SBA 504 loan broken up into a $2.04 million first lien mortgage and a $1.6 million interim second lien mortgage.
The two-story, 20,035 SF structure was originally built in 1988 and will serve as a distribution center. The Sponsors operate a wholesale and distribution company for baby items, outdoor products, health and beauty, pet supplies, sports and fitness, office supplies, and medical supplies. The company experienced solid revenue growth throughout 2020 and 2021.
Interested in applying for a commercial real estate loan with Liberty SBF? Click below to learn more about our secure online application process.
Liberty closed a $5.1 million bridge loan for the acquisition of an industrial building in Las Vegas, NV. The Sponsor required interim bridge financing for a quick close and will refinance to a low-cost, high-leverage SBA 504 loan in the spring of 2022. Our team is currently working on SBA approval.
Currently valued at $7.5 million, the Subject is a 61,400 SF industrial building situated on a 4.84-acre site. The property comprises a large warehouse space with 26-foot ceilings, several offices, and 42 parking spaces.
The borrower is an industrial packing materials company offering supplies such as moving boxes, packing foam, moving kits, printing labels, poly bags, and more. With 95% of sales coming from e-commerce, the business grew nearly 40% from 2019 to 2021. The acquisition allows the owners to increase warehouse space by 15,000 SF and gain greater control over operating costs.
Interested in applying for a commercial real estate loan with Liberty SBF? Click below to learn more about our secure online application process.
Liberty SBF provided $1,103,850 in total SBA 504 financing for the acquisition of an industrial property for a landscape supply company in Boring, OR. The property is comprised of three buildings totaling 11,168 SF and are situated on a 5-acre site. The property is 100% owner-occupied and will be used to store vehicles, equipment, and landscaping materials held-for-sale.
How can we help?
Liberty SBF offers personal service for SBA 504 and Conventional & Bridge loans for owner-user properties across the US. We’d love to help you.
Liberty SBF provided a $8,200,000 in total SBA 504 financing to refinance an industrial property located in Orange County, CA for a full-service contractor of corporate events and exhibits.
Read Liberty’s White Paper on Industrial Property Loans: Click Here.
The family-owned business provides show management, exhibit design, pre-event planning, onsite execution, and transportation. The property is a one-story, 109,204 SF industrial building located 24 miles southeast of Los Angeles. The borrower occupies 100% of the property.
How can we help?
Liberty SBF offers personal service for SBA 504 and Conventional & Bridge loans for owner-user properties across the US. We’d love to help you.
Liberty SBF provided a $1,849,230 SBA 504 loan to acquire a warehouse located in Commerce City, CO for a marine body repair and detailing shop. The borrowers’ previous location was sold, and they needed to relocate.
The subject property is nearly identical to their previous location. The 11,940 SF industrial building will also allow the borrowers to grow their business. The Property is located five miles northeast of Denver’s Central Business District in a large industrial submarket. The borrower will occupy 100% of the property. This SBA 504 loan represents nearly 90% LTV financing for the acquisition.
How can we help?
Liberty SBF offers personal service for SBA 504 and Conventional & Bridge loans for owner-user properties across the US. We’d love to help you.
Liberty SBF provided a $1,330,000 Conventional loan to acquire a warehouse located in South San Francisco, CA for a wholesaler of souvenir/gift products. The property is a 4,800 SF industrial condominium unit that the borrower will 100% occupy. The Appraiser concluded an as-is value of $1.9MM, resulting in a Liberty 1st Lien LTV of 70%.
The company sells greeting cards, postcards, fashion bags, stationery, bookmarks, journals, and other gift products and customized items to regional and national retail stores and online direct to consumers. The company had outgrown its previous space and moved to the subject property in order to accommodate its current and anticipated growth.
How can we help?
Liberty SBF offers personal service for SBA 504 and Conventional & Bridge loans for owner-user properties across the US. We’d love to help you.
Liberty SBF provided a $4,160,000 Conventional loan for the refinance of an industrial property located in Brooklyn, NY for an online retailer of bicycle products, parts, and accessories.
The borrower operates their business out of a warehouse and office located on the first floor of the 9,704 SF two-story building. A tenant runs a dance studio on the second floor. The company has 59% occupancy of the total square footage of the property to run its business., primarily selling its inventory on Amazon where it has extensive experience operating on the platform and using Amazon’s fulfillment services.
How can we help?
Liberty SBF offers personal service for SBA 504 and Conventional loans for owner-user properties across the US. We’d love to help you.
Liberty SBF provided a $589,856 Conventional loan for the acquisition of a mixed-use property located in Brooklyn, NY. The appraised value of the property resulted in a Liberty 1st lien LTV of 51.7%. The Property is a 2,470 SF, two-story industrial/office property in Brooklyn. The first floor of the Property is industrial space and the second floor is office space. The Property is zoned and functional for warehousing, manufacturing, retail, and office uses.
The borrower will fully occupy the property. The company manages its client’s construction process from beginning to end, ensuring both quality and compliance.
How can we help?
Liberty SBF offers personal service for SBA 504 and Conventional loans for owner-user properties across the US. We’d love to help you.
Liberty SBF provided a $720,000 first mortgage and a $576,000 interim second mortgage for a total of $1,296,000 in SBA 504 financing for the acquisition of a 3,235 SF office and industrial building in Brooklyn, NY. The building consists of 1,985 SF of industrial space and 513 SF of office space.
The company provides electrical services to buildings under construction. Services include wiring installation, electrical breaker box installation, fixture installation, and utility hook-ups, among others. The majority of its projects are residential properties.
Liberty SBF also provided the borrower with additional SBA 504 financing for the purchase of a second property. Click here to read the details of that deal.
How can we help?
Liberty SBF offers personal service for SBA 504 and Conventional loans for owner-user properties across the US. We’d love to help you.
Liberty SBF provided a $872,500 first mortgage and a $698,000 interim second mortgage for a total of $1,570,000 in SBA 504 financing for the acquisition of a 5,130 SF industrial building in Brooklyn, NY. The building consists of 4,617 SF of industrial space and 513 SF of office space, as well as a small cellar utilized for additional storage.
The company provides electrical services to buildings under construction. Services include wiring installation, electrical breaker box installation, fixture installation, and utility hook-ups, among others. The majority of its projects are residential properties.
Liberty SBF also provided the borrower with additional SBA 504 financing for the purchase of a second property. Click here to read the details of that deal.
How can we help?
Liberty SBF offers personal service for SBA 504 and Conventional loans for owner-user properties across the US. We’d love to help you.
Hangar exterior with rolling gates. 3d illustration
Liberty SBF has closed a first mortgage loan totaling $2.2MM for the acquisition of a 7,500 SF warehouse in San Francisco, CA. The building includes three suites which is occupied by two other tenants and the borrower.
The borrowing entity is a halal butcher shop specializing in
the processing and sale of poultry. They will use most of the property to sell a
variety of poultry to retail customers and local restaurants in the Bayview
neighborhood and greater San Francisco Bay Area.
How can we help?
Liberty SBF offers personal service for SBA 504 and Conventional loans for owner-user properties across the US. We’d love to help you.
Liberty SBF has closed a $1.465MM Conventional loan for the refinancing of a one-story, 12,700-square foot industrial property, located within the Rancho Center Industrial Park in Rancho Cucamonga, CA. The company fully occupies the space. The loan will also fund equipment acquisition and additional working capital.
The Southern California property is located 15 miles north of Riverside, CA and 37 miles east of Los Angeles, in the fast-growing Inland Empire MSA, served by Interstate 10 and 15 freeways. The company services manufacturers with a specific niche market in the pool and spa industry, in addition to the aerospace, furniture, construction, lumber yard, and boat and RV industries. The founders and owners have successfully operated the company for more than 30 years. They acquired the property in 2006.
How can we help?
Liberty SBF offers personal service for SBA 504 and Conventional loans for owner-user properties across the US. We’d love to help you.
