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504 UNDERWRITING TIP: DEALING
WITH "EXCESS LAND" Recently the SBA Processing Center has
focused on a new policy point: Does our proposed SBA 504 project
involve "excess land?"
Increasingly, we see appraisals split out
a value for "excess land," which usually is defined as land that is
not absolutely essential for the building we are financing. In
essence, the appraiser includes the footprint of the building,
parking, land needed for setbacks, etc. - then defines everything
else as "excess."
In
most transactions, this condition doesn't raise an issue. As long as
our borrower is buying a property that consists of one tax parcel,
or as long as the "needed" space extends over all tax parcels
involved in the sale, the entire property can be included in the 504
project.
The wrinkle
comes up when the transaction involves multiple parcels, and the
appraiser has defined all or at least one of those parcels as
"excess land." The SBA has concluded that any excess parcels are
"investment property," which is, by regulation, ineligible for SBA
financing. If we can't come up with a clear reason for why we should
include the excess land in the project budget, then we have to
subtract the excess land, and back the cost of that property out of
the project budget.
When could you have an
issue with excess land?
The following cases are the primary
warning signs that we might have to address this issue in a
project:
1. When you visit your
borrower's property, you see multiple acres at the site that do not
appear to be used currently as part of business
operations.
2.
You see a survey showing there are multiple parcels involved
in the sale, and you can see that some might not contain part of the
building currently.
3. The appraisal
contains a value for "excess land" as part of the analysis of
property value, and you're uncertain how that land relates to the
tax parcels involved in the deal.
There are a number of
cases in which we have been able to show that the land is not
"excess" by SBA definition, and include it anyway, such
as:
1.
The project involves additional construction that will extend
the building into the parcels that are currently labeled as
excess.
2.
The business is already using some or all of the excess land -
such as a retail center that needs the land for truck access to the
back of the facility.
3. The "excess land" is
landlocked, and cannot be developed for any other purpose. Under
these circumstances, there would be no way to convince the current
property owner to split it off and sell it
separately.
In
practice, we are able to resolve most of these issues easily,
without much adjustment to the initial proposed project
structure.
If you're
looking at a project that involves some of the signals of "excess
land," let us know immediately and we'll work through the issues
with you. We'll consistently be on the lookout for this concern, and
alert you to possible ways to address the
issue. |
BORROWER
SUCCESS STORY:
GERMAN MOTOR WERKS OF ASHEVILLE, INC.
Owner & Lead Mechanic: Scott
Spence
Lending Partner: Capital
Bank
Location: Asheville
Project: Construction of 10,000 sq.
ft. building
Community Impact: Seven jobs
created
Scott
Spence has been passionate about fixing German cars since his early
teens. After 16 years of running a successful auto repair business
just outside Jackson, Miss., he set his sights on Asheville. Taking
out an SBA 504 loan with Capital Bank and Self-Help, Scott bought
property near a burgeoning commercial area south of I-40 in
Asheville, where he built German Motor Werks of Asheville. The
business provides high-quality service to German-manufactured cars,
specializing in Porsche, Mercedes and BMW.
"Getting the 504
loan was a simple process for me mainly because we had a great
commercial banker, Lacy Cross, at Capital Bank." said Scott.
Lacy's organizational skills and advice helped in putting our
package together to get our business started here in Asheville."
Scott serves as his own lead mechanic and also manages the
business. He has a colorful history with the German car industry. In
the 1980s Scott worked for Garretson Enterprises, the most winning
private Porsche race team in history. In fact, the inaugural 1987
edition of Bruce Anderson's book, Porsche 911 Performance Handbook,
Scott is featured on the cover.
"The first week after
opening our doors on Feb. 5 we did 60 percent of our normal income
from our previous shop in Jackson," said Scott. "That exceeded our
expectations. We billed out about 39 hours that first week! This
week we're coming up on 55 hours billed, and are gaining on average
of about one new customer per day, which is
terrific."
Scott's wife, Elisabeth (Liz), has handled the
books and office work for the business since 2004. Prior to assuming
her position there, she was a successful Hollywood audio specialist
for albums, TV and movies, winning the Cinema Audio Society's award
in 2002 for "Outstanding Sound Mixing for Television - Variety or
Music Series or Specials."
German Motor Werks of Asheville is
located at 1274 Sweeten Creek Road and is open Mon-Fri. 8 a.m. to
5:30 p.m.
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CURRENT 504
LOAN RATES
6.46% fixed for 20 years for real estate
projects, including acquisition, new construction and major
renovation
6.44% fixed for 10
years for heavy-duty equipment and machinery
(as of
Feb.14, 2007)
According to
Development Company Funding Corporation (DCFC), interest rates have
climbed a bit as a steady stream of stronger economic data reduced
the chance of a Fed rate cut this year. However, this month's
debenture rate is 58 BP lower than the last interest rate cycle high
in July 2006.
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NCBA / SBA
LENDERS' ANNUAL CONFERENCE
The
N.C. Banker's Association will host an SBA Lenders' Conference Tues.
and Wed., Feb. 27 and 28, at the downtown Greensboro Marriott. Early
bird registration has ended but it's still not too late to sign up.
This is a great opportunity learn how
SBA programs can benefit your small business clients and to network
with other SBA lenders and Self-Help officers from around the state.
Danny Fontana of Triune Capital Advisors, LLC, is the featured
speaker. He is a financial consultant, author of Waking up to
Wall Street, and has been an investment commentator on national
NBC News.
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DID
YOU KNOW?
Small businesses pay nearly half of total U.S. private
payrolls.
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| LENDERS SPOTLIGHT: SELF-HELP JAN. 2007 SBA 504
APPROVALS |
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Thank you for making January a positive
month!
LENDER
LOCATION
INDUSTRY
PROJECT COST
Fidelity
Bank
Oxford
Automotive
Repair
$600,000
First Charter
Bank Charlotte
Salon &
Spa
$388,000
First Citizens
Bank Greenville
Restaurant
$327,500
First Citizens
Bank
Raleigh Shower Doors
Manufacturer
$500,000
Zions First National Bank
Charlotte Commercial Quick
Printing
$765,000
TOTAL
$2,580,500
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CONTACT
US
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Call the Self-Help loan officer nearest you to discuss a
project or learn more about how you can use an SBA 504 loan to help
your small business customers with expansion needs.
Charlotte NC Region: Dale Harrold and
Ralph Ansell, Self-Help, Great Aunt Stella Center, 926 Elizabeth
Ave., Suite 302, Charlotte, NC 28204 *
800-394-7428
Sandhills NC Region: Allen Cofiori,
Self-Help, 100 Hay St., Suite 300, Fayetteville, NC 28301 *
800-774-7966
Northeastern NC Region: Gerry Blood, Self-Help,
301 South Evans St., Suite 306, Greenville, NC 27858 *
800-893-9669
Southeastern NC Region: Louis Rogers,
Self-Help, 272 N. Front St., Suite 300, Wilmington, NC 28401 *
877-559-4284
Triad NC Region: Anna Tefft, Self-Help,
122 N. Elm St., Suite 1015, Greensboro, NC 27401 and 500 West Fourth
Street, Suite 200, Winston-Salem, NC 27101 *
800-269-7426
Central NC Region: Joe Osowski, Self-Help,
301 W. Main St., P.O. Box 3619, Durham,
NC 27702 * 800-476-7428
Western NC Region: Tom Byers, Self-Help,
34 Wall St., Suite 704, Asheville, NC 28801 *
800-229-7428
Contact our SBA 504 Program Director,
Jim Overton, at
919-956-4473.
Or contact our SBA 504 Marketing
Officer, Jamie Miyares,
at 919-956-4670.
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