Commercial real estate loans are used to purchase, construct, rehabilitate or refinance commercial properties like office buildings, apartments, industrial space and warehouses. These loans are usually backed by the property’s fair market value, which can be determined 휴대폰소액결제현금화 through appraisals or by comparing similar assets.
These types of loans are typically made to business entities, including corporations, developers and limited partnerships. However, individuals can also obtain these financing options as well.
Bank Loans
Bank loans are similar to consumer mortgages and can be used for a wide range of commercial real estate purposes. Generally, banks will only provide these types of loans to companies with exceptional credit scores and a strong financial track record.
Hard money lenders are typically more concerned with property value and less focused on business or personal creditworthiness. They may only lend to properties that a company will occupy, such as a retail storefront or warehouse. They typically don’t loan to single family residences, though they might if the company will use the property as a lab or for other non-residential uses.
Bridge loans provide quick financing to “bridge the gap” until long-term financing can be secured for a commercial property. These types of loans are revolving, with funds available to borrow as needed. At the end of the term, a full payment is made in one lump sum called a balloon payment. These loans are short-term and have higher interest rates than other commercial loan options.
CMBS Loans
CMBS loans are increasing in popularity among investors due to their attractive interest rates and fixed terms. In addition, they often provide projectable income, making them more attractive to investors than other financing options.
Unlike bank or life company loans, most CMBS loans are backed by actual commercial properties. These properties pass rental income to bond holders, who are guaranteed a rate of return. This process is known as securitization, and it allows lenders to package multiple CMBS loans into bonds and sell them to investors.
CMBS loan specialists are guided by two major guaranteeing metrics: the debt service coverage ratio (DSCR) and the loan-to-value ratio (LTV). The DSCR is determined exclusively by the lender, and it changes based on the riskiness of the property. For example, office buildings are typically considered less risky than land investments by CMBS loan specialists. Lastly, CMBS loan specialists are often less flexible than bank and life companies when it comes to modifying a loan.
Debt Fund Loans
For CRE loans that require a more substantial investment, debt funds can offer larger loan amounts and higher leverage than bank or CMBS loans. These lenders use a bottom-up approach to underwriting and may consider financial ratios and other indicators like future cash flows and accounts receivable.
Real estate debt funds typically take on a variety of commercial and industrial property assets. The funds are professionally managed, and their interest income is repaid to the investors in the fund.
This type of financing can fill the gap between what a business needs and what traditional lenders will finance. For example, if a developer is waiting for their building to be fully occupied by tenants before getting a commercial mortgage lender to advance a loan, then they need bridge financing to cover the gap in the capital stack. Debt funds can be nimble and will often provide this type of financing more quickly than a traditional lender.
Soft Money Loans
Those looking to finance commercial real estate properties but cannot meet the requirements of conventional bank loans may opt for soft money loans. These financing options are available to individuals who have good credit and can prove their ability to pay back the loan. However, such lenders often require a 20 percent down payment on the property.
Private lenders are another source of soft money commercial real estate loan funding. These lenders are less stringent when it comes to their lending requirements and can close a deal within a short period of time. However, they also tend to charge higher interest rates than banks and other traditional lenders.
When it comes to hard vs. soft money in real estate, the most important factor to consider is whether you need a short form of financing or want to grow your equity through property investments. Soft money loans are ideal for new investors who have a poor credit history and need to build their investment portfolio.