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ARTICLE -
Commercial Real Estate Financing by
Robert Poe
Real estate
financing is the life blood of commercial real
estate at all levels of investment. The tax laws
and investment advantages of using debt to buy
real estate are extremely favorable to
investors. However, there are specific
guidelines and demands when applying debt to a
real estate investment that must be met to
conform to the lender’s requirements and
investing standards.
As an example,
most lenders require 25-30% cash down payments
in order to procure financing on a real estate
purchase. With the current turmoil in the
financial markets, lenders have been very strict
about this equity participation by the investor.
We have been seeing a trend with the banks
recently that more equity is better. This
increased equity gives the lenders more security
against fluctuating property values and more
certainty the borrower will be able to fulfill
their payment obligations.
The standard
commercial loan is structured for the smaller
investor usually as follows: 25-30% down
payment, 25 year amortization, interest rate
lock for five years, and a prepayment penalty
that is in effect for the five year rate lock.
With the advent of the financial banking crises
however, the financial markets have been using
more creative means of financing properties such
as variable rates, swaps, rate caps and other
tools to achieve financing. For most smaller
investors, the best strategy in navigating this
complex market is to use the services of a
knowledgeable commercial real estate broker and
commercial lender.
The lending
market for commercial real estate changes daily,
depending on national and international events,
the economy and the local real estate markets.
Commercial real estate in the long term will
still prove to be a very tax and financially
advantageous investment when properly
structured.
- Submitted by
Robert Poe, CCIM, Certified Short Sale
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