Financing Options for Commercial Real Estate Acquisitions
Commercial lending has changed with the times. Commercial Real Estate investors now have traditional banks, as well as alternative lenders, that they can turn to for financing options. Loan sources to consider for commercial real estate include:
Although bank lending parameters are somewhat tight these days–don’t count big banks out. These large institutions are doing more commercial loans than they did before the recession. Banks realize that renter demand is strong, interest rates have been favorable, and foreign investment in US real estate continues to be robust. Big banks can still offer you competitive loan terms, however they typically offer lower LTV (loan-to-value) ratios requiring more up-front money from you.
Commercial mortgage-backed securities (also called conduit loans) are fixed-income securities, backed by commercial mortgages. Loans are bundled and sold by conduit lenders (investment and commercial banks) on the secondary market. (Today, loan originators must keep more cash on hand, relative to loans made, to help prevent another systemic mortgage crisis like the one that occurred in 2008 to 2010.) Lenders are quickly getting accustomed to these stricter regulations around loan underwriting and risk management. Therefore, CMBS loans still offer a viable financing option for real estate investors.
Non-Bank Alternative Lenders:
When banks prove too conservative for your financing needs, consider your alternatives for commercial real estate financing. Capital funding groups provide interim bridge or mezzanine loans (which use equity as collateral) while you work on arranging permanent financing. You may face higher interest rates than traditional banks, but these lenders can offer higher LTV ratios, up to 80 percent. The higher LTV means you can typically put less money down.
Lenders in today’s market realize that commercial real estate acquisitions have an excellent upside, despite Dodd-Frank lending regulations taking effect. The new rules haven’t stopped lenders from making loans. Consider all your options to get competitive terms that fit your needs. Contact the experts at ASA Capital Funding for flexible commercial real estate funding options, including CMBS, HUD, FHA, and private equity.