Buying a vacant commercial property to create a community center is an inspiring vision—but financing both the purchase and renovation can be challenging. In this edition of Ask Adam, Adam explores how traditional lenders view a community project, what funding options you should explore, and how to position your project for success.
Q: Hey Adam, I am interested in buying a vacant commercial property and turning it into a community center because there is a lot of need in my neighborhood, but I am having problems getting a loan for the purchase and rehab of the building. Any suggestions? — “Building the Block”
Dear Building the Block,
I love hearing about neighbors reinvesting in the places they care about—local ownership of real estate is an important part of building strong communities. VCC had the privilege of sitting down with The Brookings Institution to discuss their “Playbook to Buy Back the Block”, check it out when you get some time (View the PDF).
Here’s something that sometimes surprises people: before a lender can finance the building, they need to understand what happens inside the building. The revenue from your operations and programs is typically the source of repayment for the real estate loan. So, the lender has to do basic underwriting of the operating business. If your organization is already established, that operating history can significantly strengthen the financing request. However, if this is a new community center and or organization, with no operating history, your business will be considered a start-up regardless of how strong the need is in your neighborhood. This means the lender is underwriting two start- ups at once:
- the operating business
- the real estate development project.
Be prepared to explain to the lender the types of programs that you will offer, the cost of the programs, how the programs will be paid for, and your team’s experience with managing these programs.
Also keep in mind that that lenders will not provide debt financing for 100% of your project costs so your total financing package may need to include philanthropic grants, capital campaign gifts, crowd-source funding, government grants or loans, and equity capital from friends and family.
Meet the Author: Adam Trumbo, Vice President of Lending at Village Capital Corporation, has over 20 years commercial lending and financial management experience. He is focused on helping clients develop effective solutions to meet their commercial real estate financing needs. Adam works with both for-profit and nonprofit commercial real estate developers and contractors and project sponsors.