In the case of a commercial real estate loan it goes without saying that the entire physical property must be in good shape. These include the foundations, heating and air conditioning, lighting, ceilings and windows.

Commercial lenders also usually ask for more explanation when it comes to general-purpose, limited-purpose or single-purpose properties. General-purpose properties are those for which there is a competitive rental demand with generally accepted physical characteristics that appeal to many general users. Examples are warehouses and retail stores. A limited-purpose property would be a facility like a service station or department store capable of conversion to another use. Single-purpose properties are facilities that are not easily converted such as oil refineries.

When looking at borrower strength, lenders will want to analyze the property’s developer and manager. Although an individual partnership or corporation may develop the real estate, it may not manage the property, collect the rent and pay the debt.

Commercial lenders also want to look at what other properties the developer has produced - particularly, those similar to the subject property. Developing includes finding the land, arranging for physical development, arranging for financing and bringing the concept to fruition. A commercial lender should know the amount of real estate actually managed by the sponsorship group and be fully aware of its payment record.

Overall, to be successful when evaluating a commercial financing project, it is important to understand these three basic characteristics of a given project - location, physical property and borrower strength.

Lorenzo Hills is managing director of East Coast Commercial Finance, and is responsible for the origination, analysis and placement of real estate debt and equity investments nationwide. Lorenzo is located in Charlotte, N.C., and can be reached at 980-226-6746.

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