The continued demand for multifamily and industrial properties during the coronavirus pandemic has created a domino effect on the rising need for commercial real estate mortgage and other financing options. Based on the most recent Collier’s 2021 Global Investor Outlook survey, 98% of commercial real estate investors plan to develop their portfolios in 2021. Twenty-three percent of these investors intend to grow their footprints in the commercial real estate industry by 20%. They will be turning towards different financial institutions to get their funding. 

If you are one of these people, then it is best to know what kind of possibilities are out there when sourcing out funds. There are different kinds of financing options available, whether you are thinking of buying, leasing, renovating, or moving into commercial real estate. And, as with every business venture, it is always best to do your research before deciding on which way to go. This will ensure that you have gotten the perfect fit for your project.  

Below are the best choices available that could help make up your mind:

Commercial Real Estate Mortgage Loan

A commercial mortgage loan is one that you can get by using the property you intend to buy as collateral. It is the leading financing option for purchasing a commercial real estate property like a warehouse, a multifamily residential building, or a commercial plaza. If you would like to avail of this option, you have to know that the interest rate offered is an important factor. However, there are also other terms that you need to look into to ensure the success of your enterprise.

First, you need to check the loan-to-value ratio. This is the percentage of the property’s value that the bank is willing to finance. Banks will usually fund 75 to 100 percent of the property value. However, this depends on several factors, including a building’s condition and easy to sell again. Any deficit will have to come from your funds or our company’s coffers. If you get a high loan-to-value ratio, you will have more money to cover cash shortages or invest in development later. 

Next, you will have to consider the amortization period of the loan. This will usually range from 15 to 25 years, with a longer period meaning more money staying in your hands or that of your company. Then, last but not least, consideration is the flexibility offered by the bank in terms of loan repayment. A great example of this is getting a one to two-year payment holiday after the transaction to cushion the impact of the disruption and costs of the move. Flexible terms could also buy you several months of interest-only payments should cash shortages happen.

There are different types of commercial real estate mortgage loans as well, and these include:

Refinancing: This is the complete buy-out of a loan from another financial institution for such reasons as longer repayment terms or better interest rates.

Cash-Out: This works for financing or refinancing a property and happens when you either cash out a property’s equity without a mortgage or take out a previous mortgage and pay off a property’s equity.

Bridge: This is a short-term loan that can be used before a long-term funding option comes along or completely finances a property. It can also be used to improve or renovate a property.

Fix-and-Flip: Usually used by large and small investors, this loan is meant to improve properties sold later on for a profit. Because it covers the shortfall incurred during the time spent waiting for financing with longer terms, it is somehow similar to the bridge loan.

Construction: This is used for the construction, development, or improvement of commercial real estate properties.

Hard-Money: These loans are handed out to the industry’s more established borrowers. These do not usually go through the usual red tape involved in getting similar loans.

Leasehold Improvement Loan

Now that you already have the general idea of what a commercial real estate mortgage loan is, it is time to learn more about other financing options like the leasehold improvement loan. This short-term loan often comes with an amortization of over five years and can be used to shoulder renovation costs of leased space. You can get a lower interest rate for this kind of loan than an unsecured loan if a bank accepts your property’s improvement value as collateral. Plus, it is also possible for you to negotiate a payment holiday for the first six to twelve months of this type of loan.

Working Capital Loan

This is another type of short-term loan that is amortized for a little over five years. It is intended to pay for growth investments and is useful for both real estate leases and purchases. It can also aid in covering the costs of purchasing equipment, conducting a retrofit for a greener building, or hiring more sales staff. Although generally unsecured, it is the kind of loan that allows you to sometimes negotiate for a principal holiday as well.

Line of Credit

With its flexibility and short-term amortization, this is the kind of loan you can tap into easily when you need to cover renovation expenses or to make up for a sudden cash deficit.

Demand Loan

Because it has no fixed maturity date, this loan allows you more flexibility in renegotiations, especially during changes in your business situation. Although the lender can require you to pay the loan at any given time, you also have the choice to pay it back in part or in full at any time without having to pay any penalties. This kind of loan is good for purchasing equipment, paying for a move, or covering a temporary shortfall in cash.

Vendor Financing

This type of loan usually comes from eager and generous property owners who would offer to finance your purchase to make sure that you will push through with the buy. 

Equipment Loan

Although the name of the loan is self-explanatory, it is good to know that this is generally amortized over the equipment’s life, which usually runs for five to twelve years. The equipment you are planning to buy will act as the collateral for the loan.

Now that you know all these financing options keep in mind that getting a commercial real estate mortgage may be the top choice in funding your purchase or renovation of a property, but it is not the only kind of loan around. There are other viable choices you can look into that may serve their purpose depending on what you require. So, assess your needs before making a decision.

For More Information, Contact:

John (Adam) Watson, CEO, CanCap Mortgage Group Inc. 

Email:   Tel: 416-452-5281