Properties that generate consistent cash flow through arms-length leases are favourable candidates for standard financing. For industrial assets, this can mean properties that have leases greater than five years as well as properties that have multiple units leased to multiple arms-length tenants. Owner-occupied assets can be considered, however, historic financial performance will be reviewed and scrutinized. Specialized industrial assets also introduce financing challenges. The risk is greater in the case of specialization as it is harder to devise contingency plans and find replacement tenants if required.

Standard financing offers a term of five years or more, a fixed interest rate and is typically closed to prepayment for the term’s duration. For industrial, conventional is the most common type of standard financing.

Standard financing is usually considered when borrowers want the payment predictability that comes with a fixed interest rate. However, it is important to note that a typical conventional financing term for an industrial asset is five years. Longer terms are available, but there is often greater scrutiny on future cash flows. Borrowers must be able to show that longer-term leases (i.e. maturing in 10 years or more) are in place for the duration of the mortgage term.

Commercial Mortgage Backed Securities (CMBS): CMBS is a conventional financing solution available for first mortgages on established, stabilized properties (generally three or more years of stable operating history). This type of financing works well for properties with in-place, stabilized net cash flow.

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