Commercial property investment rarely fits neatly within a single lending category.
While a straightforward, well-let commercial asset may sit comfortably within established lending criteria, mixed-use properties and more unusual commercial assets can require a different approach. A building combining retail and residential accommodation, a property with a specialist use, an unusual tenant profile or an asset that is difficult to assess against conventional comparables can all introduce additional considerations for a lender.
This does not necessarily make the property difficult to finance. More often, it changes where lender appetite may exist and how the transaction needs to be presented.
Why Non-Standard Property Requires A Different Approach
Commercial lenders consider considerably more than the headline value of an asset.
Property type, location, occupational demand, tenant covenant, lease structure, rental income and alternative use potential can all influence appetite. The lender will also consider the borrower: their experience, financial position, existing portfolio and the purpose of the borrowing.
With mixed-use property, there is a further dimension. The balance between residential and commercial elements can influence how the asset is assessed and, potentially, which part of the lending market is most appropriate.
As a result, two properties with a similar value and rental yield can attract very different lending propositions.
The question is therefore not simply whether a property can be financed. It is how the asset, borrower and wider transaction will be interpreted by different lenders, and where that combination is most likely to fit within the market.
Where Lender Appetite Can Emerge
Mainstream commercial lending policies are necessarily built around defined parameters. Where a property sits outside them, greater underwriting discretion may be required.
This is where specialist lenders, challenger banks, private banks and other funding providers can become relevant.
Depending on the circumstances, appetite may exist for properties involving mixed residential and commercial use, unusual construction or configuration, specialist occupational uses, shorter or more complex lease structures, multiple tenants, or assets where the investment rationale extends beyond rental yield alone.
Complexity, however, should not automatically be interpreted as greater lending risk.
A property that falls outside one lender’s criteria may remain an attractive proposition to another. Much depends on how the lender assesses the underlying security, sustainability of cash flow, strength of the borrower and wider rationale for the transaction.
Understanding those differences across the market can be particularly important when financing an unconventional asset.
The Investment Case Matters
For non-standard commercial property, the quality and clarity of the lending proposition become increasingly important.
Rather than approaching the market solely with a requested loan amount, the transaction should be considered in the context of the wider investment case.
Why is the property attractive? How sustainable is the rental income? Who occupies the asset and on what terms? What experience does the borrower bring? Is there scope to improve the property, strengthen income or enhance its longer-term value? What is the intended repayment or exit strategy?
Together, these considerations provide a lender with a more complete understanding of the transaction.
For experienced investors, the wider portfolio can also provide important context. An individual asset viewed in isolation may appear unconventional, while the borrower’s broader property holdings, liquidity, track record and financial position may present a considerably more complete picture.
The role of the adviser is therefore not simply to identify a lender prepared to consider the property, but to understand the strength of the overall proposition and how it is likely to be interpreted by the market.
Matching The Lending Strategy To The Objective
Commercial lending appetite varies considerably between institutions. Some lenders may be comfortable with the borrower but not the property type. Others may understand the asset but require a different leverage position, income profile or structure.
There may also be circumstances where the appropriate solution does not sit within a conventional commercial investment mortgage.
The starting point should therefore be the investor’s objective.
For an acquisition, certainty and speed of execution may be the immediate priority. For an established investment, the objective may be to refinance existing debt, release capital or restructure borrowing. Where a property requires refurbishment or repositioning, the initial funding requirement may differ considerably from the longer-term solution once the asset has stabilised.
Understanding these distinctions can materially influence both the structure of the borrowing and the lenders most appropriate to consider it.
Structuring The Case For The Market
Access to lenders is only part of effective commercial finance advice. Equally important is understanding how different lenders assess an opportunity and presenting the transaction in a way that allows its underlying strengths to be properly considered.
For mixed-use and non-standard property, this means building a coherent picture of the asset, tenancy arrangements, rental income, borrower experience, financial position and proposed strategy before approaching the market.
At Henry Dannell, our role is to understand the transaction in its entirety: the property, the borrower and what the investor is ultimately seeking to achieve.
From there, we can assess where lender appetite may exist and how the borrowing might be structured to support the wider investment objective.
For unconventional assets, this distinction matters. Where one lender may see a property that falls outside established criteria, another may see a well-supported investment proposition when the wider context is understood.
In a market where lending appetite and underwriting approaches can vary significantly between institutions, understanding where a transaction belongs, and how it should be presented, can be as important as the underlying property itself.
If you are considering the acquisition or refinancing of a mixed-use or non-standard commercial property, our specialist finance advisers can assess the funding requirement, understand the wider investment objective and explore the lending routes that may be available.
Commercial mortgages are secured against property. Failure to maintain repayments may result in the property being repossessed. Lending is subject to individual circumstances, property acceptability and lender criteria.
