Financing sources for commercial real estate include mortgage banking firms, savings and loan institutions, regional banks, insurance companies, and private investors.
Commercial real estate financing can take on very different terms, and the way deals are structured is based on a number of factors, including:
• Anticipated use of the property
• Anticipated returns from the property
• Type of real estate
• Size of real estate
• Perceived risk to lender
• Market conditions
Each of these areas must be examined by the buyer prior to seeking commercial real estate financing. Buyers then need to examine the type of loans offered by lenders in accordance with their needs and anticipated growth. Unlike obtaining financing for residential real estate where the transaction is based on the value of the home at the time of the sale, commercial real estate financing will be based – in part – on the value of the business in the future.
While some lenders specialize in specific types of commercial ventures, such as retail operations, warehouses, or apartment complexes, others provide across-the-board financing to a wide variety of commercial ventures.
For the potential borrower, the key to starting the process is to have the necessary paperwork in order. Despite the many types of financing and types of commercial real estate, lenders remain primarily concerned with the level of risk they’ll be taking. Therefore, they must see the following documentation:
• Income and expense statement for the property demonstrating a solid income stream
• Financial statements on all principals involved as owners of the property
• Profiles of the management team
• Property appraisal
• Financial statements on the borrowing entity
• Plans, including construction blueprints (if available) for the use of the property.
Here is an example of submission requirements for a mid-size income-producing property (amount of loan $200,000 – $5,000,000):
• Completed Loan Application
• Credit Report
• Three year historical Property Income and Expense Statements
• Current Rent Roll. Rent Roll should include tenant names, square feet, start and end dates of leases, reimbursements, monthly rents and vacancies
• Current Financial Statements for each principal/guarantor
• Purchase Contract
• Most recent two years corporate and personal Tax Returns
As I say throughout my blogs, if I may be of assistance with your real estate questions please contact me. My way of giving back is to give away my knowledge. Thank you for reviewing this blog.