Risky Real Estate loans

Risky Commercial Real Estate loans

Commercial Real Estate Articles November 8, 2003

The following is a list of possible real estate properties that might have trouble getting financing. As a real estate investor, you might have been wondering why you are having problems getting that loan or why is it that the terms proposed by the bank are not those that your friend got for his property. The answer might lie on the type of property you are financing. This list can help you identify the reason.

Note: This list is subjective and incomplete.

A Land This is self explanatory as land loans are usually speculative in nature.

B Hotels/Motels Usually problematic, more so in recent years. There might be some exceptions done if the property is under a national chain. These are called flag hotels and are usually stronger than independents.

C Self storage warehouses If you have been reading my writings as I am sure you have since they are so riveting, you would have noticed that I mentioned how there was usually a considerable amount of time before you would have to worry about competition, and that you would know in advance if someone was building competing properties nearby. These type of properties take little time to build, can only be used for one purpose, and have what are called "low barriers of entry"

D Nursing Homes and Assisted living facilities This is something I just learned recently regarding these types of properties. The potential liability is amazingly high. When a lender repossess a property, the last thing in their mind is to have to run the business. In the case of these properties, they might be forced to run them as the tenants are protected. Of course the management fees and the insurance expenses associated with this type of arrangement would be high.

E Time Shares Lots of management and expenses associated with them in case that the property needs to be foreclosed. A similar situation as the one faced by assisted living facilities.

F Highly specialized properties A property that has a lot of improvements geared towards a particular industry might not have the same value in the market as the amount spent in those improvements. Typical examples are buildings with a lot of cold storage capacity or gas stations where there is a lot of money invested in tanks in the ground.

G Restaurants and Churches Restaurants deservedly or not are considered bad credit risks, and foreclosing on a church would be nothing short of a public relations problem. There are other reasons, but writing about those two would fill a couple of pages by themselves.


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