It sounds like you take great care of your park Cherrie! It’s good to hear owners taking pride in the quality of their property.
Local banks are excellent sources for getting into a park with a high ratio of park-owned mobiles. Local banks can be flexible and blend many products into one single payment. When a local bank considers mobile homes and pads in the collateral equation, they will be essentially blending a personal property value with a real estate value. In loan terms there is the personal property portion which may typically consist of a 10-15 year amortization (payment schedule), and a real estate portion which may consist of a 20-30 year amortization. The result will usually be a blended amortization of something more than the personal property portion and less than the real estate portion, say a 15-25 year amortization.
The rates that go along with these loans will typically be based off the prime rate index. Since the park-owned mobile home park is more management intensive, it is often times qualified much like a business loan hence the prime rate index.
Also, because your options may be limited to local bank financing, the number of available lenders becomes narrower. You will need to find a local bank with the appropriate “taste” for these kinds of deals or who is comfortable with you as a borrower. Different local banks will be lending on different property types based on their investor’s goals, company mission, etc. Many borrowers move from their local banks when they need more aggressive terms or bigger loans (Large Commercial starts in the range of $5 million to $20 million and goes up to around a $1 billion). Local banks are typically not able to finance these larger deals or cannot provide the more competitive terms needed by some investors (lower rates, longer amortizations, etc.).
Just like local banks, national lenders have their own “tastes” for project types based on their investor’s goals, company missions, etc. National lenders tend to be more rigid than local banks in the terms they offer. Usually a program is created with a certain “spirit” in mind. There may be a program dedicated to offering finance options for properties that have been stabilized for many years and borrowers that are exceptionally strong in cash-flow and weak in assets. The program offers longer term financing than might be available or desirable with a local bank program. We might call this program “No Assets-Long Term Fixed.” Pardon the lack of a better name!
This program would most likely not be available for a property that is in need of rehab or has had tenant occupancy problems historically. Since the program is made for a very specific collateral with a very specific borrower in mind a different option will be needed. The rates offered are reflective of the risk inherent in the collateral and the ability to repay. The program is designed to be very streamlined so the people behind the scenes are performing a very specialized skill intended for a single product. A local bank might have the same loan officer who looks at personal property financing to also look at real estate financing hence the flexibility and the single point-of-contact. This is rarely so in the national lender arena. As a result of the higher volumes and specialized skills in considering a single type of project, these streamlined programs allow for rates and terms priced more competitively with respect to the project type than a local bank will typically offer.
The difficult task in utilizing national loan programs lies in finding the right program for the right borrower and the right collateral. In residential lending this is quite easy because the collateral is quite predictable: same purpose, many comparable collaterals within a small area, same source of repayment, etc. The only “wild card” becomes the borrower. This is why residential loans rely so heavily on borrower credit and income.
In commercial the ability to repay usually lies in the collateral (for stabilized property). An office space operates quite differently than a restaurant in how it makes money, spends money, etc. They also perform quite differently in “loan terms”. An office building is usually a much lower risk than a restaurant and the rates and terms reflect that.
Oops, I’ve got to get going or I’ll miss the plane for San Diego!
So in closing, local banks are a much easier way to obtain financing for certain projects which have multiple facets such as personal property and real estate. They can be flexible and more agile in their decisions. Most borrowers begin their commercial lending experience with a local bank.
National lenders tend to offer more competitive rates and terms for very specific project types. A bit more time can go into placing a project type with the appropriate program. If you work with the right finance professionals, you will quickly learn what their specialization is and will be able to rely on them for that expertise. However, you may need to rely on multiple “specialists” in order to meet a variety of finance needs.
The industry is taking big strides in the small balance commercial sector. There is a lot of consolidation going on right now with mid-sized lenders which is allowing more and more options from a single point-of-contact or a “one stop shop” if you will.
So it all comes down to an investor’s priorities and goals. These are the factors that will determine whether or not a national or local bank lending program is right for you.
See you at the conference!