Commercial Investment Mortgages
Commercial investment mortgages provide long-term finance for commercial property held as an investment, whether for acquisition, refinance or capital raising.
The value matters. The rent matters. The lease matters. The tenant matters.
The lender is assessing an income-producing asset.
A commercial investment mortgage is generally used where the borrower owns the property as an investment and lets it to a third-party tenant.
The lender therefore looks beyond the property value. The rent, lease structure, tenant covenant and ability to re-let the property can materially affect the strength of the credit case.
Two properties with the same valuation can represent very different lending risks if the quality and durability of their income differ.
| Income | Is the rent sufficient and sustainable enough to support the proposed debt? |
|---|---|
| Lease | How long is left, are there break clauses and how is rent reviewed? |
| Tenant | What is the tenant’s financial strength and ability to meet the lease? |
| Interest cover | Does rental income leave sufficient margin over the finance cost? |
| Reletting | How easily could the property be re-let if the present tenant leaves? |
| Property | Location, condition, use, demand and alternative marketability still matter. |
When a commercial investment mortgage may make sense
Purchase
Acquire a tenanted commercial investment property with longer-term finance.
Refinance
Replace existing debt where the investment remains viable on a term facility.
Capital raising
Release equity from an existing commercial investment asset for another property purchase or defined business purpose.
Portfolio restructuring
Refinance one or more commercial assets where a clearer debt structure is needed.
Bridge exit
Refinance a property previously acquired using short-term finance once occupation and income have stabilised.
Lease event
Refinance following a new letting, lease renewal or another event that materially changes lender appetite.
Rental income is only valuable for as long as it remains credible.
A lender wants confidence that the income will continue to service the debt, not simply that rent is being received today.
- Who is the tenant and how financially strong are they?
- How long remains on the lease?
- Are there tenant break clauses?
- Is the current rent above, below or close to market rent?
- What happens at lease expiry?
- How easy would the property be to re-let?
- Does the income provide comfortable interest cover?
The rent should do more than just meet the debt.
Commercial property income is not completely predictable. Interest rates can move, tenants can leave, rent reviews can disappoint and void periods can arise.
Lenders therefore normally want a margin between the property’s income and the cost of the borrowing. The exact requirement varies by lender and transaction.
The underlying principle is more important than a particular percentage: the investment should remain workable when conditions are less favourable than expected.
What lenders typically assess
Lease length
A longer unexpired term can provide greater visibility over future income.
Break clauses
A tenant break can materially change the effective security of the income stream.
Tenant covenant
The financial strength and trading history of the tenant are central to lender confidence.
Rent reviews
Lenders may consider how and when rent can increase and how the current rent compares with market levels.
Repair obligations
Lease terms can affect the owner’s exposure to future repairs and property costs.
Expiry and reletting
A lender will consider likely demand, rental level and void period if the tenant leaves.
What we need to understand the investment.
A first review normally requires a relatively small amount of accurate information.
- Property address and type
- Purchase price or estimated current value
- Current rent
- Tenant details
- Remaining lease term
- Any break clauses
- Amount required
- Existing borrowing
- Borrower or ownership structure
- Purpose of finance and required timescale
Issues that can weaken an application.
Short lease
Limited remaining term can reduce income visibility and lender confidence.
Weak tenant covenant
Rental income is less reassuring where the tenant is financially fragile.
High leverage
There is less tolerance for valuation movement, voids or refinancing pressure.
Poor interest cover
Income that only narrowly covers the debt creates less resilience.
Specialist property
A narrow pool of alternative occupiers can affect value and lender appetite.
Understand the asset. Test the income. Prepare the credit case. Then select the lender.
Commercial investment lending works best when the property, income, lease and borrower are considered together.
Understand
Establish the property, rent, lease, tenant, borrower and purpose of the borrowing.
Test
Examine interest cover, leverage, lease strength, tenant quality and reletting risk.
Prepare
Build a professional lender pack with the relevant property, income and supporting evidence.
Present
Approach lenders whose criteria and appetite fit the asset, lease and income profile.
Commercial property requirements from £10 million to £50 million.
We also have access to selected lenders for substantial commercial property transactions, including funding requirements between £10 million and £50 million.
Larger facilities require a more detailed assessment of the asset, sponsor, income, structure, leverage and exit, and are considered individually.
If you are considering a larger acquisition, refinance or portfolio transaction, it is worth speaking to us early so the case can be positioned properly before it reaches the lender.
Frequently asked questions
What is a commercial investment mortgage?
It is longer-term finance secured against commercial property held as an investment and normally let to a third-party tenant. Lenders consider both the property and the quality of the rental income.
How much can I borrow against a commercial investment property?
This depends on the property, value, rental income, lease, tenant strength, borrower profile and lender criteria. The income must also support the proposed debt.
Does the property need to be tenanted?
Not in every case, but a vacant property can materially change lender appetite and may require a different structure until the income position has stabilised.
Can I refinance a commercial bridge onto an investment mortgage?
Potentially. The property, rent, lease and borrower must meet the requirements of the future term lender when the refinance is required.
Can I raise capital against an existing commercial investment property?
Potentially. The lender will consider current value, rental income, existing debt, proposed leverage and the purpose of the additional borrowing.
Discuss a commercial investment property.
If you are purchasing, refinancing or raising capital against a commercial investment property, send us the basic property, lease and funding details.
We will look at the asset, income, leverage and lender fit before deciding how the case should be presented.
EAS Finance is a credit broker, not a lender. Finance is subject to status, valuation, lender criteria and satisfactory legal due diligence.