In recent weeks, we have had mortgage brokers and lenders pricing and refinancing loans that we are working on in the Hawaii commercial real estate marketplace. It has become very clear that these lenders are placing a lot of weight on longer term leases. The properties that have average leases of at least five years are garnering excellent loan rates and quotes. The situation for a lender seems to be 10 years or more on leases, and Tenants with rated credit.
As the lease expirations get shorter, lenders are pricing a lot of risk and expense into the turnover of Tenants.
We have seen a very dramatic difference in pricing for the loan and rates from mainland and Hawaii lenders. This spread shrank dramatically during the boom years 2005-2007. In fact, shorter term leases were desirable, as buyers and lenders looked at those as opportunities to increase rates in a fast growing market.
Today’s reality is that shorter term leases are being penalized. It may be advisable to prepare the property for sale and extend leases prior to any marketing of an investment property in Hawaii.