Stabilisation loans for warehouse assets

How much can you borrow on a stabilisation loan?

A stabilisation loan on a part-let warehouse is usually sized up to around 65 to 75 percent loan to value (LTV) of the building. Because the industrial unit is already producing some income, a lender can look at the current rent and a sensible view of the rent still to come as the remaining space is let up.

The more of the warehouse that is already let on solid tenant covenants, the closer the advance sits to the top of the range and the keener the rate. A largely vacant unit with most of the letting still ahead sits lower and prices more like a bridge. We size the loan so it carries the asset comfortably through to full occupancy and a clean refinance.

What rates and terms apply?

A stabilisation loan is priced between bridging and a long-term commercial mortgage, with rates commonly from around 7 percent. That reflects an industrial unit that is built and partly income-producing but not yet on a settled, stabilised rent. The further along the letting, the lower the loan to value (LTV) risk and the keener the rate.

Terms usually run from 12 to 36 months, giving real time to let up the remaining space without the pressure of a short bridge. Interest may be serviced from the income the warehouse already produces or rolled up where the rent is still building. We structure the term and the interest so the asset can reach full occupancy before the refinance.

What does a lender want to see?

A stabilisation lender underwrites the letting plan above all. It will want the current tenancy schedule and passing rent, the space still to let, evidence of demand for the industrial unit, the marketing strategy and a realistic timeline to full occupancy. A credible path from part-let to fully let is what makes the case.

It also looks at the quality and location of the warehouse, since both drive the strength of tenant demand, and at your experience letting industrial space. Where you can show terms already agreed or in solicitors' hands on the remaining units, the lender has far more confidence in the income and the exit onto a commercial mortgage.

What is the exit?

The exit from a stabilisation loan is a refinance onto a long-term commercial mortgage once the warehouse is fully let and the income has settled. That term loan is the cheapest and longest money in the lifecycle, so the stabilisation phase is really about getting the industrial unit ready to qualify for it.

We line up the eventual commercial mortgage in parallel with the letting, so the term lender's appetite, loan to value (LTV) and rate are known before full occupancy is reached. When the last unit lets and the income stabilises, the move off the stabilisation loan onto the term mortgage is smooth rather than a last-minute scramble.

Can you refinance or remortgage the warehouse later?

Yes, and that is the whole purpose. Once the unit is fully let on settled income, you remortgage off the stabilisation loan onto a long-term commercial mortgage at a materially lower rate. The stabilisation phase carries the letting risk; the term loan then holds the stabilised warehouse cheaply for years.

At that refinance the asset is judged on the same fundamentals as any investment mortgage: tenant covenant, lease term, yield and loan to value (LTV). A fully let industrial unit on strong leases will support a higher advance and a keener rate than it did part-let. We arrange the refinance and can keep the same lender or move to a more competitive one.