Commercial Real Estate Financing
Commercial Real Estate Financing
Commercial Real Estate Financing is the process of getting mortgages for acquisition, development, or renovation of a commercial property that produces income. The real estate is used for business purposes, and there are a variety of financing options in the market to meet investors’ different needs. Depending on functionality, commercial properties are categorized into four classes: office building, industrial, multi-family, and retail. Sources of investment capital can come from commercial banks, Real Estate Private Equity, Real Estate Investment Trusts, Insurance companies, and Endowment funds.
What can Lions Financial do for you?
Lions Financial helps clients create a comprehensive plan based on the characteristics of their business needs and type of commercial property. Lions Financial provides solutions to achieve clients’ financing goals. It is essential to compare and choose the right financing method that suits your Real Estate deal. To best assist, we apply the Four-step SIRE process to create value for you.
Survey: We will begin the process with a questionnaire to have a general understanding of your real estate deal and evaluate the commercial property to be financed. We clarify your capital available, location issues, financial strategy, and gain an understanding of the unique current problems that need to be addressed.
Insight: To have an in-depth insight into your commercial real estate property, we will incorporate research on comparable properties, determine debt financing options available, include resources to evaluate multiple lender options, and create an assessment for the reasonable factors to take into consideration for mortgage financing.
Recommendation: We will come up with a specific financing recommendation based on your business’s finances, personal finances, and property characteristics. As an independent firm, we can help provide quotes for a commercial loan product from multiple lenders.
Execution: We will execute on the financial product your company would like to implement based on the options provided and the budget available. We help achieve a better result with our professional experience, integration of technology, understanding of your industry, and staying attuned to the compliance and regulatory requirements.
Key Items: Commercial Real Estate Financing
Four Commercial Asset Classes
- Office: Office buildings can be more steadily profitable with office tenants who intend to sign longer leases. Depending on location, this sector of commercial properties is generally categorized into urban and suburban office buildings.
- Industrial: Industrial buildings house industrial operations for a variety of tenants and are mostly located outside of urban areas, especially along major transportation routes.
- Apartments/Multi-family: Investments in apartments or multi-family housing are good sources for passive income due to the demand for rental housing. It’s essential to have a good management plan to keep the units up to date because this type of commercial real estate tends to have a higher tenant turnover rate than others.
- Retail: Location is the key factor in this type of commercial real estate because retail stores and restaurants thrive in areas that are highly visible and accessible to passing traffic. The benefit of retail real estate is the potential to acquire a wide variety of tenants, which indicates a more stable income.
Financing Institution for Real Estate Investment Capital
- Commercial Banks: Traditional mortgages issued by commercial banks are common to use for purchase or refinance owner-occupied commercial properties. These financing institutions usually offer the lowest mortgage rate on the market but with rigid requirements.
- Private lenders: It can be tough for some business owners to secure a traditional commercial real estate loan, and that’s when hard money loans are brought into play. Private lenders allow these business owners to take out a loan backed simply by the value of the commercial real estate, with fewer credit requirements but a higher interest rate.
- Insurance company: Insurance companies, especially life insurance companies, are significant capital resources for commercial real estate investments. As commercial real estate mortgages help diversify the investment portfolio as long-term assets, they are highly favorable to insurance companies.
- Real Estate Private Equity: Real Estate Private Equity raises capital from outside investors and invests in real estate with its expertise to generate returns for those outside investors.
- Real Estate Investment Trust: Real estate Investment Trust is a company that allows individuals to invest in large-scale income-producing real estate and pays investors with dividend distribution.
- Family Office Investment: A family office is a private wealth management firm for affluent individuals or families. Providing commercial real estate financing usually makes up a significant portion of a family office’s investment plans.
- Endowment Funds: Endowment funds represent the capital resources donated to universities or colleges, which use the resulting investment income generated by commercial real estate for a future specific purpose.
Lions Financial partners with technology platforms to gain access to digital tools that help secure the best loan terms for commercial real estate projects. With a cloud-based portal, we use an automated loan origination technology to provide multiple quotes. And then we communicate with lenders and negotiate loan terms
- Traditional Commercial Real Estate Mortgages: Traditional mortgages are standard permanent loans originated by commercial banks and are not backed by the federal government. They tend to have more restrictions when it comes to qualification, but, in the meanwhile, they offer comparatively lower interest rates.
- Commercial Bridge Loan: Commercial bridge loans provide short-term financing to business owners before they qualify for permanent mortgages. Bridge loans are popularly considered for underutilized commercial properties or unsatisfactory credit profile of a borrower, securing a quick opportunity by making faster closing possible.
- Commercial Hard Money Loan: Similar to commercial bridge loans, hard money loans are flexible arrangements intended to provide short-term financing. When permanent mortgages are not options at the moment, hard money loans enable business owners to purchase, develop, or renovate the commercial property fast.
- Government-backed mortgages: Backed by the government’s funding, both Fannie Mae and Freddie Mac provide Small Balance Loan (SBL) Program for multi-family commercial properties to help business owners with the acquisition or refinance.
Tax-saving strategies used in commercial real estate investments
- 1031 Exchanges: 1031 Exchange is an IRS code section that allows you to exchange one investment property for another with no tax or limited tax due at the time of exchange if all requirements of 1031 are met.
- Opportunity Zone: An Opportunity Zone is an economically distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment.
Contact Lions Financial to find a better strategy and holistic plan for your company. Lions Financial helps executives and businesses, together with their tax and legal advisors, to develop the optimal financial solutions for success. Contact us for an initial consultation to determine how we can help your current business need.