Requirements for Commercial Property Investors
1. Acceptable Purpose Requirements
Eligible applicationsEligible Property Types include the following:
These requirements apply to commercial property investors who buy or develop properties for leasing or rent to non-related parties. The loan servicing capacity comes primarily from the rents of these properties.
- Caravan Parks and Motels
- Heavy Industrial Estate
- High-tech Industrial
- Hotels leased or rented to another party
- Office Properties
- Other Retail
- Property Trusts
- Residential Property
- Shopping Centres
2. Income/Capacity Requirements
Credit exposures will only be approved where a review of the latest available historical performance and income/expenditure data shows a capacity to meet all existing and proposed commitments on a timely basis.
Assessment will include analysis of:
- Terms of conditions of leases/rental and management agreements and whether any of the conditions are detrimental to the Bank’s interest
- Ability of the tenants to meet lease/rental payments when due and the borrower’s ability to service debts during vacancy periods
- Prospects for renewing leases or attracting new tenants when leases expire before the end of the credit facility term
- Current and projected outgoings
- Current and longer term rental levels and the on-going rental demand for the property type involved
- Borrower’s ability to fund future capital expenditure
- Compliance with statutory regulations
- mplications of the Goods and Services Tax on revenue stream
Other issues will be considered when assessing applications and are dependent on the type of property being invested in
3. Acceptable Repayment Requirements
The maximum loan term is 15 years.
As a guideline for commercial property investment loans, the Bank’s general preference is that the maximum loan term not exceed the greater of either:
- 75% of the remaining term of the predominant lease (by rental value) excluding option periods. For example, if the remaining lease is 8 years then the maximum term is 6 years; or
- 18 months less than the remaining term of the predominant lease (by rental value) excluding option periods. For example, if the remaining lease is 8 years then the maximum term is 6.5 years
4. Security & Loan Documentation Requirements
- The Bank must be satisfied with the security being provided. This is normally:
- A registered mortgage over the property being developed, and
- Other property
- a registered company charge over the business assets where applicable, and
- guarantees from all interested parties
The credit application must be fully secured on the Bank’s normal Loan to Value Ratios.
Note: See Loan to Value Ratio (LVR) heading below and refer to Section 6 for more information on LVR
The borrower must agree to the following:
The borrower may not, without the Bank’s prior written consent:
- materially vary the lease/management agreements
- make alterations to the property held as security where:
- the costs exceed the lesser of $2 million or 20% of the valuation of the property; and
- structural alterations are involved and/or Local Council approval is required
The Bank has the right to obtain revaluation of the property at any time if it is reasonable in the circumstances to do so. This will be done by a valuer approved by the Bank and in a form and manner approved by the Bank. The borrower will have to bear the cost.
Loan to Value Ratio – Commercial Property
As a guideline, where full recourse to the client’s shareholders/directors/sponsors’ financial positions:
- is available, a maximum LVR of 70% will generally apply to commercial property
- is not available, a maximum LVR of 65% will generally apply to commercial property
Where other security is provided the LVR applicable to the asset type will be used.
Note: Full recourse is where the Bank is able to seek redress from the borrower or the project sponsor in the event that the sale of the security does not clear the debt.