Options Available To Finding Commercial Real Estate Finance
In recent years developers have found it challenging to access funding in order to commercial real estate finance projects. This is generally due to the reluctance of banking corporations to lend money for refurbishments and new constructions. Banks have become very cautious about lending to developers especially those with little or no experience.
It can always help if the project is properly detailed and even permissions obtained before any lender is approached. This will mean that the developer will need to use their own finances for this, but lenders are always more comfortable with lending to people who show initiative and eagerness in using their own funds. In fact, any proposal that shows that the developer will put up a fair percentage of the required finance for the project has better chances of being accepted. Proposals that show that the amount of the debt as not exceeding 75 to 80 percent of the value of the project after development have the best chances of attracting finance at fairly decent terms.
Once you are sure you have a winning property, you need to make some calculations. This means working out the initial costs of buying the property, including purchase price, deposits and any associated professional fees. Then you need to look at the actual development costs but be realistic. Most people vastly under-estimate the costs. Next remember to include day-to-day running costs whether these are for the ongoing use of the property or until you come to sell it. And finally, assess the potential resale value.
A senior debt loan
Before seeking out property development finance you must determine what form of property finance you will be undertaking. A senior debt loan is recommended for residential and commercial projects as it covers between 60% and up to 80% of the property development loan value. This can be arranged against the gross development value with additional security and all interest payments may be deferred if necessary.
100% property development finance
In some cases you may be able to negotiate bridging rate finance options without any need for profit sharing. One example of this includes situations where you already own the land; another instance is when you have a good relationship with the expert lending partner.
The developer must ensure that these documents are prepared well in advance, properly reviewed and deal with any possible objections. Getting help from commercial finance brokers can help to create the necessary documentation, as they are people who will be well versed with what financiers and lenders ask for.
Once you have completed renovation, you have to consider the day to day costs of running the property. Chances are you are not going to immediately sell the property, so you will need to factor in the cost to maintain it. Some of these monthly costs include utilities, insurance, mortgage, administration costs etc. If you are intending to lease the property, how long do you think it will take to find a suitable tenant?
Alternatively, you can pre-sell the lease so you know that you will have a guaranteed income stream soon after the property development project is completed. You may have to accept a slightly lower rent but this can be a small price to pay compared to an empty property and no rental income.
Finally, look for commercial real estate financiers. These brokers will also have contacts with plenty of other private and secondary finding sources. Take a look on this site for some thoughts.
If you think you will not be able to afford to develop a property on your own or if you think your mortgage amount will not be enough, consider partnering with several people. A group of four people can apply for mortgage.
One of the biggest is Global Pacific Ltd who in fact provides Auckland commercial real estate finance all around New Zealand.