Business real estate financing
The real estate roller coaster has taken many people to the heights of absolute wealth. It is also the cause of many conflicts that we are witnessing across the globe. A cursory glance at these who form the top list of the Fortune Magazine will clearly show that real property ownership plays a critical role in financing more than real estate itself. Indeed, Warren Buffet, Donald Trump, Sir Richard Branson, just to name these, have benefited immensely from the property boom that once was.
Real estate, also called real property can be defined as the land and anything permanently affixed to the land, such as building, fences and those things attached to the buildings, such as light fixtures, plumbing and heating fixtures, or other such items that would be personal property if not attached. .
Commercial real estate lending
There are several modes that investors can acquire finances for commercial real estate investments. The major sources are as follows:
Mortgage banks
This may remind you of Fannie Mae and Freddie Mac. Mortgage banks are set up for the purposes advancing money against the title of the property that is being purchased or that which the borrower has offered to the bank and it has accepted as security. How it works is that the title remains with the bank until repayment of the loan is complete. In certain arrangements, the bank will only inform the relevant authorities that deal with registration of interests in land that the title in question should not be dealt with in any manner that is likely to defeat the interests of the bank. Technically, the transferred title is called collateral.
Saving and loans firms (S&L)
These exist in most countries and are set up to compliment the banking industry’s inability or reluctance to venture into riskier areas. S & L institutions operate under fewer regulations and have been allowed to venture into non core areas. In many jurisdictions, S & L’s have majored in commercial real estate lending. They may be in a position to fully finance the buying of real property or may partly finance.
The mode adopted will all depend on the market being addressed and the amount of money being sought. Although much blame has been laid on these institutions for the current credit crisis due to mismanagement and sub prime lending in the United States, their value as far as commercial real estate is concerned is immense.
Insurance companies
Insurance Companies are increasingly innovating new products that enable the insured to get access to lump sum money for investments. For example, in some jurisdictions, insurers have come up with policies known as “income builder” which when mature, can be used as collateral for funding commercial real estate investments.
Private Investors
Some private investors with great financial reserves can also fund the buying of real estate. In fact, most of the middle class real properties around the world are owned by private investors. For these start ups in this field, approaching angel investors, venture capitalists, corporate venture capitalists and mezzanine lenders may be of great help.
Things to look out for
It is critical to identify whether the lender that you are approaching specializes in the lending that you seek since some concentrate on industrial while others are in it for residential properties. Some of the basic things that lenders will look out for include:
- Income and expense statement for the property;
- Financial statements of the property owners;
- Curriculum Vitae of the management team;
- Property appraisal;
- Financial statements on the borrowing entity; and
- Plans for construction, if any.
References
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