Question about mortgage financing when you are an investor in a tenants business
So I'm trying to get into the head of local bankers.
We have about 40% vacant in our warehouse. I'd like to get a cash out refi when we are at close to 100% occupancy. Currently the building is owned free and clear.

One option that we have to is to invest in a tenant who will sign a lease to use the remaining vacant. The catch is that we need the refinance proceeds in order to invest in the tenant. 

Will the appraiser and bank consider this new lease when considering the loan amount? Will I need disclose to the bank that I will be an investor in the tenants business? What if I own 80% of the business (we are still in negotiations).


[{"id": "edmeqtz", "text": "I think it depends a bit on the size of the building and monthly rent. \n\nMy 100,000 SF warehouse the bank wants financials on the tenant and cares about the lease term a great deal.\n\nOn my smaller spaces or many tenant spaces they don't ask for as much details.   I would sign the lease with 2-3 months free rent and start the refinance.  This will give you time to get the proceeds.   I don't think you need to disclose it, but I would lie.", "replies": [], "depth": 1}, {"id": "edn2pqc", "text": "I think you would need to disclose it because it has a material effect on the building producing income.", "replies": [], "depth": 1}, {"id": "ednnxn4", "text": "You will need to disclose it because you would own more than 10% of the business. The appraiser will not likely consider anything in negotiations, only executed leases. If you believe in the tenant's concept then have them sign the lease, apply for the refi, then invest in the business.", "replies": [{"id": "edqf56z", "text": "That is a good idea.\n\nWhat if I am effectively starting the business and hiring managers to run it?\n\nI would be able to fund the business with some startup capital, and follow-on capital would come from the building. How does that complicate my financing path, and what would you do?", "replies": [{"id": "edr84ju", "text": "This does not complicate the financing path, because the building would be underwritten as 100% occupied as long as there is a signed lease in place.", "replies": [], "depth": 3}, {"id": "ee22qfs", "text": "BigPlay has the right idea. You can build a clause into the lease stating that the tenant has the right to cancel if their space isn\u2019t finished out by a certain date. Tenant improvement language is common in leases. A signed lease will pull much more weight with a bank than an LOI or saying that \u201cthings are in negotiation.\u201d\n\nMain thing to keep in mind when prepping to deal with the bank:\n- Are you seeking a nonrecourse loan or is someone going to provide a repayment guarantee?\n\nIf the loan is nonrecourse, most smart banks will request to see some kind of financial information on you, the owner of the future tenant. Be prepared to provide personal financials, tax returns, and projections and/or a business plan for this new tenant. If someone or an entity is providing a repayment guarantee, what\u2019s the size of this project in comparison to their net worth and liquidity? If the guarantor is flush with cash and this project is a drop in the bucket for them, you probably won\u2019t have to worry about vetting yourself and your tenant. If the guarantor is weak and the guaranty is more for reflection of character, than prepared to show the aforementioned documents. ", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}]