So you own an office building, with a $6 million commercial loan from a conduit. All is going well, until you add on in the back of your office building a $4 million self storage project.
But it's all good, right? That vacant space was being wasted.
The self storage addition is a huge success. You quickly begin to fill it, and the value of your commercial lender's collateral soars from $11 million to a whopping $16 million. Your lender's commercial loan is now just 37.5% loan-to-value.
You paid cash to construct the self storage addition, and the net cash flow on the property has increased by $14,000 per month. How could any commercial lender not be thrilled?
But then the loan servicing agent for your conduit commercial lender gets the annual tax bill, and the tax bill is materially higher. They write to you for an explanation.
"No problem, guys. At my own cost, I just added 122 self storage units on the unused land in the rear of our office building. The value of your collateral has just increased by $5 million. You're welcome."
And then the poop storm begins... Click here to view the video and to watch in horror as the downpour from hell drenches this unfortunate commercial property owner.