For a few years after the Global Financial Crisis, applications for commercial mortgages in NZ dropped considerably. However, in the last couple of years, activity has increased again. However, commercial lending institutions of all types are much more cautious about the projects and teams they will lend money to.
The biggest impact of the GFC was that lenders of all types, whether commercial or consumer, became extremely cautious about lending money. The tightened up their lending criteria for the types of project they would consider financing. The due diligence on borrowers became more stringent too.
As a result, many commercial building and investment projects could not get off the ground.
This was apparent in the number of unsold commercial buildings in Auckland.
However, in the last year or two lenders have been more willing to make loans for commercial property investment as borrowers have sorted out their Balance Sheets and lenders, especially banks, have had more cash to lend. Obviously, if a lender does not make loans, then they do not make any income.
Types of commercial mortgage lender in NZ
In fact, many commercial lenders closed shop post the GFC. Clearly the major banks stayed in the market but they were among the most rigid in setting new criteria for loans.
A number of second tier commercial loan companies and some private lenders withdrew or even went out of business. This made it even more difficult to get commercial mortgage financing.
This was especially the case for certain types of investment project. The banks have always been more cautious than other lenders but it was generally possible to find an alternative finance source if the project was financially viable.
Current situation for commercial mortgages
For the remaining lenders, the applications for loans are at extremely high levels.
According to the NZ Herald, there is a shortage of retail space available in the Auckland. That shortage is then reflected in the high demand among investors to buy retail space. As a consequence, the demand for applications has been huge, and some lenders are even being overloaded by the uptake in desire to invest in commercial and retail properties.
One trend in commercial lending is to look at larger commercial, industrial and retail purchases. This gives solidity to the loan portfolio of the banks and other lending institutions who like to spread their risk. The argument being that larger and therefore more stable companies are those who lease larger premises.
Commercial mortgage lending patterns
As a broad view, lenders are more willing to consider commercial mortgages providing that the prospective borrower can meet certain lending requirements. These include a good credit track record, sound commercial leases in place for the property, and strong management from the borrower. The quality of the borrower has always been important but these days this is even more of an issue.
As there is this renewed desire by financiers to lend money, borrowers are in a good position to negotiate terms that can help their investment. For sure, lenders are experiencing high demand for mortgage loans but at the same time, they are keen to invest their funds in projects that can give them a good but sound return.
Where to source commercial mortgages in NZ
Given all of the above, the high demand, the tighter constraints and the change in lending sources, it is difficult for most investors to find the best commercial mortgage sources. This means that it is easier for investors to work with a commercial mortgage broker who can assess your investment plan and then match it to likely lenders.
The broker has wide ranging experience of many different commercial investments and so can use that knowledge to give a rigorous assessment of your intended purchase. They can review the leases, although you must seek legal advice to fully review any lease arrangements. The broker can then see what type of lender might be interested in your project. Finally they can also negotiate terms for the deal to suit both parties.
So if you have a robust project plan with sufficient leases and deposit in hand, then borrowing for commercial mortgages in NZ is much easier now.