Top Strategies to Finance a Logistics Hub Purchase

A logistics hub purchase requires a commercial property loan structured around the asset's income potential and your business needs.

The lending approach for warehouses and distribution centres differs significantly from residential property. Lenders assess the property's ability to generate rental income, the strength of any lease agreements, and how the facility supports your business operations. The loan amount typically sits between 60% and 70% of the property's value, though this varies based on location, tenant quality, and your financial position.

How Commercial Property Loans Differ from Residential Lending

Commercial property finance is assessed on the asset's income rather than your personal income alone. A lender will review the property's current and potential rental yield, the quality of any existing tenants, and the lease terms in place. If you're buying a logistics hub with an established tenant on a long lease, that strengthens your application considerably. If the property is vacant or you plan to occupy it yourself, the lender will focus more heavily on your business financials and cash flow projections.

Consider a buyer purchasing a 2,000 square metre warehouse in Mulgrave with a five-year lease to a national logistics company. The tenant pays market rent, the lease includes annual CPI increases, and the property is well-maintained with clear access to major transport routes. In this scenario, the lender could offer up to 70% of the property's valuation because the income is secure and the tenant creditworthy. The loan was structured as interest-only for the first three years to preserve cash flow, with principal and interest repayments commencing once the business had expanded into additional sites.

What Lenders Look for in a Logistics Hub Purchase

Lenders assess location, tenant strength, lease terms, and property condition. A logistics hub near major freight routes, ports, or industrial precincts will be viewed more favourably than a property in a secondary location with limited access. Tenant quality matters as much as the property itself. A lease with a well-established business or a national company provides more security than a short-term agreement with a startup.

Lease length is also critical. A property with three or more years remaining on the lease is far more appealing than one with six months left or a month-to-month arrangement. The lender will also review the property's compliance with current planning and environmental regulations, particularly for industrial use. Any issues with zoning, contamination, or building standards can delay or derail an application.

Loan Structure Options for Warehouse and Distribution Centre Purchases

Most commercial property loans are structured with a loan term of up to 25 years, though the initial interest rate period is often shorter. You can choose between a variable rate, a fixed rate for a set period, or a split structure. Variable rates offer flexibility if you plan to make additional repayments or refinance within a few years. Fixed rates provide certainty, particularly if you're managing cash flow across multiple sites or business expenses.

Interest-only repayments are common in the first few years, particularly if the purchase is part of a broader business expansion. This reduces your monthly commitment while you establish or grow operations. After the interest-only period, the loan typically converts to principal and interest repayments, though you can often extend or restructure depending on your lender and circumstances.

Some lenders also offer commercial loans with flexible repayment options, including the ability to redraw funds if you've made extra repayments, or access to a revolving line of credit secured against the property. These features are useful if you anticipate needing working capital or funds for fit-out and equipment after settlement.

How to Calculate What You Can Borrow

The loan amount is determined by the property's value, its income potential, and your ability to service the debt. Lenders calculate serviceability based on the rental income the property generates, minus an allowance for vacancies, outgoings, and interest costs. If you're occupying the property yourself, the lender will assess your business cash flow and profit and loss statements instead.

The loan-to-value ratio for commercial property typically sits between 60% and 70%, meaning you'll need a deposit of 30% to 40% of the purchase price plus costs. In some cases, lenders may go higher if the property is in a prime location, the tenant is strong, or you're providing additional security such as another commercial or residential property.

For owner-occupied logistics hubs, lenders may also consider the property's role in your business. If the warehouse is essential to your operations and relocating would disrupt revenue, that can work in your favour. However, lenders will still require evidence of consistent cash flow and profitability, typically from the last two years of financial statements.

Purchase Costs Beyond the Deposit

Beyond the deposit, you'll need to budget for stamp duty, legal fees, valuation costs, and building and pest inspections. Stamp duty on commercial property in Victoria is calculated at a higher rate than residential property, and there are no concessions or exemptions for first-time buyers. Legal fees for commercial transactions are also higher due to the complexity of lease reviews, contract conditions, and title searches.

A commercial property valuation is required by the lender and typically costs between $2,000 and $5,000 depending on the size and location of the property. Some lenders will also require an environmental site assessment, particularly for industrial properties, which can add another $3,000 to $10,000 to your upfront costs.

If you're purchasing a logistics hub as part of a business expansion or relocation, you may also need to factor in fit-out costs, equipment purchases, and working capital to cover the transition period. Some lenders will include these costs in the loan amount if the combined facility remains within their lending criteria. Alternatively, you might structure a separate business loan or line of credit to cover the fit-out and equipment.

When to Consider Bridging Finance or Pre-Settlement Funding

If you need to settle on a logistics hub before selling an existing property or securing long-term finance, commercial bridging finance can provide short-term funding. This is common when a business is relocating and needs to overlap leases, or when an opportunity arises to purchase a property before the buyer has liquidated other assets.

Bridging finance is typically interest-only and structured for six to 12 months. The loan is secured against the property being purchased, and in some cases, against an existing asset. Interest rates are higher than standard commercial property loans, reflecting the short-term nature and higher risk. However, bridging finance allows you to move quickly on a purchase without waiting for other transactions to complete.

Another option is pre-settlement finance, which can be used to cover deposit payments or early costs before the main loan settles. This is less common in commercial transactions but can be useful in competitive markets where timing is tight. If you're considering bridging loans or similar structures, it's worth discussing your timeline and exit strategy with a broker who understands commercial property transactions.

Structuring the Loan for Business Tax and Cash Flow

How you structure your commercial property loan affects your tax position and cash flow. If the property is held in a trust, company, or self-managed super fund, the loan structure needs to align with that entity's borrowing capacity and tax treatment. Many buyers hold commercial property in a different structure to their business operations, which can offer asset protection and tax planning benefits.

Interest on a commercial property loan is generally tax-deductible if the property is income-producing or used in your business. This makes interest-only repayments attractive in the early years, as you can maximise deductions while preserving cash flow. However, you should weigh this against the long-term cost of the loan and your plans for the property.

If you're planning to eventually sell or refinance, a loan with flexible terms and no significant exit penalties is preferable. Some commercial loans include break costs if you repay early, particularly if you've locked in a fixed rate. Make sure you understand these terms before committing, especially if your business plans might change within the first few years.

FinancePath works with a range of lenders who offer commercial property loans across different structures, including loans for owner-occupied properties, investment purchases, and mixed-use facilities. The right structure depends on your business, your tax position, and how the property fits into your broader financial strategy.

Call one of our team or book an appointment at a time that works for you to discuss how a commercial property loan can be structured around your logistics hub purchase.

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