Is it time to buy commercial real estate?
The coronavirus pandemic has delivered many challenges and changes to businesses and investors. But with change comes opportunity. As commercial real estate (CRE) needs shift and evolve, now may be an ideal time to invest in CRE ownership. Here are a few tips to consider when seeking financing.
Position yourself for success.
Lenders are attracted to borrowers with strong credit fundamentals, equity, and proven CRE experience. Ensure your ability to obtain funding by maintaining low leverage on existing projects and building a strong due diligence team to properly evaluate potential acquisitions. CRE sectors including retail and office space are experiencing disruption and reorganization due to the pandemic. This presents opportunities for acquisition and repurposing, but requires careful evaluation to ensure a solid investment. Multi-family housing and industrial sectors tend to be recession proof, but should be examined for recent concessions and economic viability.
Utilize available programs.
The current low interest rate environment is not likely to continue for the long term. For borrowers who want to lock in fixed, long-term low interest rates, many lenders offer back-to-back swap programs. This mechanism essentially allows banks to issue borrowers a variable rate loan and swap it for a fixed low-interest rate. This type of loan works best for long-term loans greater than $1 million, which pairs well with many CRE investment opportunities.
Partner with the right lender.
Every CRE loan structure is customized based on factors including term length, property type, and ownership model. Find a lender with CRE expertise that matches your loan size and project complexity. Since banks manage the amount of CRE loans on their books, it is important to select a lender with capacity to fund your loan. Once you have identified a compatible lending partner, engage them early. Even if you are just considering an acquisition, the right partner can provide guidance to help evaluate the opportunity and keep you on track toward achieving your goals.
Commercial real estate needs are always shifting, presenting investment and expansion opportunities. Every deal is unique, so it is important to partner with a knowledgeable lender who can provide advice and insight before you buy.