Commercial Interest Rates

[DaveW]

No Bank will offer same commercial rate to all Commercial clients.
The commercial rates are calculated based on the clients Risk/security/profitability profile so it varies always.

[King13]

Can anyone clarify how the commercial interest rate is set? I am told it is (BKBM + cost of funds) + customer margin. Corporates and large scale investors get 'BKBM + customer margin'. Thanks.

[JBM]

Anyone secured fixed 5yr commercial loan recently? .. in talking with my local bank westpac they have very tough conditions on commercial lending aka around 2% higher than res rates min 50% deposit must be P&I loan must be paid off within fixed term lease ...and building min 67% NBS
compare that to res no wonder I’m seeing 10% net yield commercial properties still on the market 2yrs with price drop 10%+ of course lower NBS so can’t get lending but great locations

[DaveW]

Better to keep to the higher NBS mate, unless you're planning on a development project.
Should be able to get Interest only at 50% LVR.
2$ above res rates is about right.
Do you have a single tenant occupying all the property, they must be nervous to ask you to pay off within the fixed term lease.

[JBM]

Better to keep to the higher NBS mate, unless you're planning on a development project.
Should be able to get Interest only at 50% LVR.
2$ above res rates is about right.
Do you have a single tenant occupying all the property, they must be nervous to ask you to pay off within the fixed term lease.

yes high as possible NBS of course would be great but comes with a cost $$$ ... you do wonder how thousands of low NBS commercial properties in prime CBD locations will move forward from here esp in lower priced smaller population locations where re-development doesn't make sense ... of course earthquake prone a BIG no no .... but C grade 35% to 66% is seen as not an issue at this time in LOW risk areas of NZ by councils that have many decades to deal with earthquake prone buildings .... aka the likes of Dunedin LOW risk for earthquake where even earthquake prone D grade an lower sub 34% NBS buildings have up to 35yrs to bring up to standard ....

Yes funding from my bank WP which I think is one of the better to deal with business wise.... I wouldn't even bother to take them anything under 67% NBS ..

For me I'm looking to BUY from own funds ... of course this means lower price point ... but then nil stress around dealing with bank lending

Looking at one single story... good CBD location in low Eq risk town .. 10% net return - C grade - two tenants one 3yr ROR the other nation chain 10yr fixed term ROR ... is tempting .. and will like to have a look over..

[DaveW]

If your strategy is all cash then the NBS code doesn't affect you, provided you buy with good real estate criteria like you say.

10% yield sounds good but obviously you will be missing out on the additional capital gain of a leveraged property.

case A) $2M property with 10% yield, purchased all cash = $200k pa net rental income.
case B) $5.3M property with 6.7% yield (355k), purchased with $2M deposit, 60% LVR @ 5% interest (150k) = $200k pa gross rental income.

same return on cash but case B will grow more capital gain.

[Don't believe the Hype]

Anyone secured fixed 5yr commercial loan recently? .. in talking with my local bank westpac they have very tough conditions on commercial lending aka around 2% higher than res rates min 50% deposit must be P&I loan must be paid off within fixed term lease ...and building min 67% NBS
compare that to res no wonder I’m seeing 10% net yield commercial properties still on the market 2yrs with price drop 10%+ of course lower NBS so can’t get lending but great locations

During our recent negations with a number of banks one wanted to treat our portfolio as commercial - offered us 6+%, I can't recall as when they said 6%+ i tuned out...but I had been talking to them about a 5 yr term so assume this was there 5 yr rate - we were able to get this back onto resi terms under 3% for 5 yrs.

This gives a fairly good look at what commercial vs. resi does - same underlying asset... same cash flow etc... just a different check box on the banks software.

[Beano]

Commercial floating interest rate is currently 2.7%

[JBM]

If your strategy is all cash then the NBS code doesn't affect you, provided you buy with good real estate criteria like you say.

10% yield sounds good but obviously you will be missing out on the additional capital gain of a leveraged property.

case A) $2M property with 10% yield, purchased all cash = $200k pa net rental income.
case B) $5.3M property with 6.7% yield (355k), purchased with $2M deposit, 60% LVR @ 5% interest (150k) = $200k pa gross rental income.

same return on cash but case B will grow more capital gain.

Yes and no ... If say I purchased earthquake prone 34% or below .. then the bank would surely not value at all well maybe land value only Vs higher NBS%... also surely insurance must be an issue ..

Yes your example makes sense .. still debt is a liability.. esp. if tenant leaves

[DaveW]

Yes and no ... If say I purchased earthquake prone 34% or below .. then the bank would surely not value at all well maybe land value only Vs higher NBS%... also surely insurance must be an issue ..

Yes your example makes sense .. still debt is a liability.. esp. if tenant leaves

But if your strategy is cash purchases then what does it mater what the bank says?

To reduce risk of tenant lost , buy a multi tenanted property, or multiple small single tenanted properties.

[JBM]

But if your strategy is cash purchases then what does it mater what the bank says?

To reduce risk of tenant lost , buy a multi tenanted property, or multiple small single tenanted properties.

Yes looking at muti-tenanted ... guess the fact is I'm looking under a Million value so certainly more rubbish around... still be good to have a property that have some value add .... looking at one with good size retail / kiwibank atm + vacant first story 8x room office thats bringing in 12% net ... great CBD location small town NZ... not earthquake prone so no need to upgrade .. leases running out next year ... will look at it tomorrow ...

[DaveW]

Yes looking at muti-tenanted ... guess the fact is I'm looking under a Million value so certainly more rubbish around... still be good to have a property that have some value add .... looking at one with good size retail / kiwibank atm + vacant first story 8x room office thats bringing in 12% net ... great CBD location small town NZ... not earthquake prone so no need to upgrade .. leases running out next year ... will look at it tomorrow ...

sounds good