Warehouse term loans

How much can you borrow on a warehouse term loan?

A warehouse term loan is usually sized up to around 65 to 75 percent loan to value (LTV) of the industrial unit. Because this is the long-term commercial mortgage on a fully let, stabilised building, the lender has the settled rental income to work with and can lend with more confidence than on a bridge or a development facility.

The final loan is set by both the LTV and a debt service test. A lender sizes the mortgage so the passing rent covers the interest and any capital with a comfortable margin, often interest cover of around 130 to 160 percent. Where the yield is keen, that cover test rather than the LTV can cap the loan, so we model both before placing the term loan.

What rates and terms apply?

As the longest and cheapest money in the warehouse lifecycle, a term loan prices well below a bridge or development facility, with rates commonly from around 5.5 percent. The keenest pricing goes to a fully let industrial unit on a long lease to a strong tenant covenant, since the income underpinning the commercial mortgage is most secure.

Terms commonly run from 5 to 25 years and can be fixed for an initial period or tracked against a reference rate. You can take the loan interest only, which keeps payments lower, or amortising, where capital is repaid alongside interest over the life of the loan. We model both profiles so the term loan fits how long you intend to hold the warehouse.

What does a lender want to see?

A term lender underwrites the income first. It will want the lease, the passing rent, the unexpired term and any break clauses, and a read on the tenant covenant, because the rent is what services the commercial mortgage over many years. For a multi-let warehouse it looks at the spread of tenants and the weighted lease length.

Alongside the asset, it assesses you as the borrower: your experience holding industrial property, the structure you hold it through, and your wider position. For an owner-occupier it also looks at the trading business behind the rent. A fully let, well-located warehouse with a settled income makes the long-term mortgage straightforward to place.

Can you refinance or remortgage onto a term loan?

Yes, and most term loans are exactly that. A warehouse term loan is the natural home for an industrial unit coming off a bridge, a stabilisation loan or a development facility once it is fully let and the income has settled. Moving onto the long-term commercial mortgage drops the rate sharply and locks in cheap money for years.

A remortgage is sized on the same fundamentals as a purchase: tenant covenant, lease term, yield and loan to value (LTV). If the rent has grown or the warehouse has been re-let on stronger terms, it may support a larger advance or a keener rate. We review the whole market at each refinance rather than rolling onto whatever the existing lender offers.

What is the difference from a wholesale warehouse facility?

The word warehouse causes genuine confusion here, so it is worth being plain. A warehouse term loan in our sense is a property loan, a commercial mortgage secured on a physical warehouse or industrial unit that a tenant occupies and pays rent on. It is bricks-and-mortar lending against a building.

A wholesale warehouse facility is something else entirely: a capital-markets line a lender uses to fund a portfolio of loans before securitisation. We do not arrange that. What we arrange is the long-term mortgage on the physical warehouse, sized on the asset, the lease and the loan to value (LTV).