[Editor's Note: This story has been corrected to accurately reflect MidSouth Bank Regional President Kevin Latiolais' quote that finance options can range from down payments as low as 10 percent. The words "down payments" were inadvertently omitted from the print version. ABiz regrets the error.]
Home refinancing is at its highest in three years with fixed mortgage rates floating at an all-time low, but for local businesses looking to save money and find better terms on their commercial loans, now could also be the time for you to start exploring refinancing options.
Several local banking execs say the historically low fixed interest rates have created a more robust market for refinancing commercial real estate, which for the business owner typically means big savings and better loan terms — all of which translates into a boost in capital to expand existing operations or launch new ventures.
“Commercial banks have a big appetite in financing owner-occupied commercial real estate since the regulatory environment gives high marks to banks that lend on these projects,” says MidSouth Bank Regional President Kevin Latiolais. “For this reason, banks are more competitive in pricing and structure. Finance options can range from down payments as low as 10 percent with long-term financing up to 20 years.”
With a good credit rating, Billeaud Companies President Tex Plumley says commercial realty in this climate can be refinanced with interest rates of 5 percent or less.
But the refinancing uptick has been mostly limited to owner-occupied commercial real estate as opposed to tenant-driven properties, as a swath of new federal regulations has made it harder for non-owner occupied commercial realty owners to secure refinancing, explains MidSouth Bank President and CEO Rusty Cloutier. The tenant-driven structure of the project often makes it a riskier loan.
“A successful company with good historical profits will tend to invest in owning their real estate as opposed to leasing,” says Latiolais. “For this reason, the owners have a vested interest in seeing the project through. Conversely, non-owner occupied commercial real estate has a tighter market in securing favorable financing options. The success of the project is dependent on the tenant leasing the real estate from the investor. The owner of the real estate is not the tenant. Many times the term of the lease is shorter than the amortization of the loan, and complications for repayment may occur if the lease is not renewed.”
Despite the tough regulatory market, Cloutier says there are refinancing options out there for commercial owners who don’t occupy their buildings.
|Former banker Ronnie Foret is helping River Ranch’s developers refinance several non-owner occupied commercial buildings.|
“You just have to work hard to find them,” he says.
Locally, one notable exception to the bankers’ assertions is the Hub City hot spot River Ranch. The traditional neighborhood development, the brainchild of developers Rodney Savoy and Robert Daigle, comprises mostly non-owner occupied commercial real estate that’s been largely successful in securing refinancing, according to Ronnie Foret, an investment manager who served as the developers’ banker for years before shifting to his current role as their financial adviser.
“In River Ranch, the list is endless,” says Foret, who has been advising Daigle and Savoy on their projects for more than a decade. “You just have to show a project that makes strong economic sense.”
Foret says there are five key factors to look at when determining whether refinancing a non-owner occupied commercial property is a viable option: the total cost of the initial project, how much equity the building owner has to leverage, income sources (both tenant-driven and outside revenues), business expenses and debt service coverage.
The refinancing indicators are less of an obstacle for experienced developers and investors whose existing capital and outside income sources make them more attractive to lenders. With the wild success of both River Ranch and its sister TND Sugar Mill Pond in Youngsville, as well as a lengthy list of other developments and real estate ventures under the belts of Daigle and Savoy, Foret says he is “really optimistic about the economy and available financing in Lafayette.”
“The Acadiana area has a good business environment for real estate financing for prudent business owners and real estate investors,” MidSouth’s Latiolais says. “Although non-owner occupied real estate ventures have limited financing options, real estate investors will only risk their capital in projects they are comfortable with after they perform extensive analysis on the tenant, lease terms and expected return on their investment.”
And whether the commercial refinancing applies to big developments like River Ranch or smaller companies that own the building they occupy, Cloutier warns that due diligence is always a must in determining when to refinance.
“It’s like home ownership. You have to ask yourself, ‘Is it worth it?’” Cloutier says. “Rates are low, but you have to make sure you’re in the right situation.”