Warehouse and industrial property loans: LVR and what lenders want

Demand from logistics, e-commerce, trades and manufacturing has kept vacancy low in most capital city industrial markets for years, rents have risen, and the buildings themselves are simple: clear span, high clearance, hardstand and a small office. A valuer can find comparable sales and leases easily, and a lender can see that if the tenant leaves, another will come. Compared with a specialised asset like a childcare centre or a pub, the risk is plainly lower and the LVR reflects it.

Location and precinct: proximity to arterial roads and ports, and whether the area is established or emerging. The building: age, clearance height, floor loading, hardstand, truck access, office ratio and compliance. The tenant and lease, on the same terms as any commercial property: term, options, reviews, outgoings, tenant strength. Environmental: industrial sites can carry contamination from previous uses, and lenders may require an environmental report before lending, particularly on older sites or where the previous use was fuel, chemicals or heavy manufacturing.

A business buying its own warehouse is assessed on the business financials and the rent it currently pays, with the property as security. Owner-occupied industrial commonly reaches 75 to 80 per cent LVR at banks that support small business premises, over terms of 15 to 25 years, and can be structured through a company, trust or SMSF with the business as tenant. Equipment and fit-out for the business are financed separately.

Small strata industrial units, common in metro trade estates, are financed at similar LVRs to freehold, with the strata checks that apply to any strata commercial lot: levies, sinking fund, by-laws and minimum size. They are popular with tradespeople as owner-occupiers and with investors because of the tenant pool, and lenders are comfortable with them.