Flex Space Feasibility Study in the Chicago-Naperville-Elgin, IL-IN Metro Area

Third in the country, and mostly a cancellation story

Chicago-Naperville-Elgin is 3 of 312 areas nationally for loans to nonresidential lessors, a class made of investor-owned flex, office and retail buildings, yet within the area the class is 20 of 39 and a quotient of 0.86x leaves it somewhat under the national weight. The record holds 42 approvals worth $49.4 million for FY2017 through FY2026, every one in the 7(a) program and none in 504. Cancellation reached at least 33.3% among approvals from FY2017 through FY2024, and the ceiling variant matches it. That is a floor, and it is high.

What the class contains, and the FY2024 note

No field divides flex owners from office or retail lessors: flex, office, retail and banquet hall rental sit under a single industry code. Read these loans as investor-owned commercial buildings broadly, of which flex is one part. The record also carries an FY2024 lessor note: most lessor businesses are passive in SBA's view and so ineligible, so lending to this class nearly stops from FY2024 and later years are thin. A recent year with few loans reflects that rule, not a reading of the class.

Size and holders

A midpoint of $576,500 is 0.96x the national midpoint, close to parity, and the typical loan runs from $426,250 to $1.7 million. Franchise share is 14.3%. Byline Bank is the named holder, with 12 loans worth $20.7 million, a heavy concentration of dollars, according to the holder SBA lists today. Cook County has 23 of the loans.

Years

The years that can be printed are FY2017 with 6 loans and $8.5 million, FY2020 with 6 and $6.3 million, FY2021 with 10 and $11.3 million, FY2022 with 5 and $7.1 million, and FY2023 with 8 and $6.6 million. The remaining years and the charge-off rate stay blank, held back by Loan Analytics.

What a flex-building study must test

Because the borrower is a lessor, the project is only as good as its tenants. A study should test the vacancy and rent the submarket supports, which these figures do not carry and the study must source separately, the mix and credit of likely tenants, lease terms, and the cost to build out or reposition space for light industrial, office or showroom use. It should test whether an owner-occupant could fill part of the building. Rate sensitivity matters for a leveraged investor, so debt service coverage should hold at higher vacancy. The appraisal will value the income stream, and the study should show how the loan relates to that value, given the cancellation floor.