A Roadmap for Commercial Real Estate Syndication, Part 1
Posted on 13. Jan, 2010 by admin in general
HOW TO DO YOUR OWN SYNDICATIONS, Part 1
One of the most important requirements for purchasing commercial property is having enough down payment money, called “equity,” to complete the transaction. A very popular method of raising these funds when you don’t have it yourself is by forming a group of people who pool enough capital to let you close the transaction. They get a portion of the income and appreciation for their funds, you get the rest for finding, analyzing, purchasing, and managing the property.
When you decide to take the step to form groups of investors through the process called “syndication,” you run into a situation where the law may require you take on a specific duty to fully inform your co-investors of all aspects of the property and the investment. Most people getting involved in group investments are usually under-informed or inexperienced with regard to the following group-investment concepts:
• The legal aspects of the co-ownership of real estate.
• Factors that affect the value of commercial real estate.
• The process and responsibilities involved in commercial property management.
• The fair compensation to the group manager or “syndicator,” who later becomes the property manager.
When you take on the role of syndicator, you actually create an “agency duty” to your co-investors. You have a higher responsibility to disclose all of the aspects that can affect a particular commercial property investment, both good and bad. So when you form a group for investment, it’s very helpful to have checklist for all of the things you need to do so that you meet your responsibilities to your partners. Part of that check list includes:
1. Researching the available commercial rental property in a particular neighborhood and choosing one to purchase.
2. Preparing a preliminary analysis of the investment. This would include its operating history, status of title, proximity to any environmental or natural hazards, the neighborhood, the local and national economies, and finally, the physical condition of the property.
3. Next, you have to get control of the property in your name with the ability to assign it to a successor entity through a purchase contract or option.
4. Once you gain control, escrow needs to be opened with your name as the purchaser, not that of the entity! You’ll assign your purchase rights to the entity before you close.
5. Then you complete an analysis of the income and expenses, and confirm the Seller’s disclosures regarding the condition of the property, including its improvements, location, title, and operations.
6. You’ll also apply for new debt financing (or assume the existing), depending upon what you indicated in the purchase contract. This obviously won’t apply if you’re buying your commercial building all cash!
7. At this point in the process, you will want to review your plans for forming and operating your ownership entity (most likely a Limited Liability Company) with experienced accounting and legal advisors. Getting this part correct at the outset will save you major of headaches in the future.
8. Now you get really busy. You’ll prepare the investment circular, subscription agreement, Articles of Organization and Operating Agreement for the LLC, pertinent exhibits, and addenda. The syndicator (you) is named as the Manager of the LLC in these documents.
9. You now can use the investment circular to solicit investors to fund your purchase, through the LLC.
10. Once you’ve chosen your investors (there will be a whole article devoted to this subject), you need to get their signatures on the Subscription Agreement and the Operating Agreement of the LLC. You’ll also want to deliver their funds to escrow for the close.
That takes you up to completing the purchase. As you can see, there’s quite a bit for a sydicator to do just to get the property purchased. We still have to detail the on-going operation of the property. I’ll complete your roadmap in the next article and then we can move on to the individual steps in greater detail.
Commercial Real Estate: Raising Equity
Posted on 10. Jan, 2010 by admin in general
Those researching the subject of commercial real estate investment are likely to encounter the term “OPM” on a regular basis. OPM is an acronym for “Other People’s Money.” I’ve covered this topic in general in an earlier article, but today I want to focus on raising “equity” for your commercial purchase transactions.
To review, the reason many people are reluctant to invest in commercial real estate is that the property values are often so high that it takes a great deal of money to complete a transaction, even using75% to 80% loan to value commercial loan. Few individuals have the financial resources needed to buy suitable properties for cash, let alone the $1,000,000 or so you would need to purchase even a moderately priced $4,000,000 building. This is where the concept of using other people’s money comes into play. The idea is to pool the funds of like-minded investors to purchase a property and then duplicate the process to build a portfolio.
The difficulties facing most investors are finding the other people with the money and proactively structuring the transaction. Everyone needs to be clear on their role in the transaction, how profits (or losses) are distributed, how results are reported, and how the project ends successfully. The process is not as difficult as it may seem at first and it even has a name: “Syndication.” Potentially, even commercial real estate syndicators with little or no credit history have access to hundreds of thousands of dollars, all as close as the people they already know. One word of advice here, though: Start making a serious effort to clean up your credit if you are challenged in this manner. You may have to guarantee some loans and you don’t want your credit history to be a stumbling block.
Before you start telling everyone you know that you are raising money for a commercial real estate investment, there are some things you need to know and that you’ll likely have to research:
First, you need to understand investment entities, such as Limited Liability Companies. You need to know how they are formed, operated, taxed, and unwound because they will be your primary investment vehicle. They also establish who is responsible for what actions through the life of the investment.
Second, you need to learn about and understand a document called a “Private Placement Memorandum.” It has other names like “Investment Circular,” “Investment Disclosure,” etc. This is the document that discloses all of the potential risks inherent in your proposed investment. You need to be extremely thorough in discussing those risks because should something go wrong with the investment and you don’t cover it here, you could be subject to a lawsuit. One key aspect of this part of the process is having a good attorney working for you with experience in these types of transactions.
Third, you need to have good analysis and presentation skills. You should know the ins and outs of spreadsheets (or know someone who does) so that you can dissect a transaction completely and put together a good case for making the investment to your potential investor partners.
Fourth, you need to find the investors. Start with busy, successful people whom you know, who have more money than time: Your doctor, dentist, psychologist, veterinarian, accountant (who is really good for knowing OTHER busy, successful people with more money than time), attorney, dry cleaner, golf pro, etc. You’d also be surprised how many people you know who have I.R.A.’s or 401k plans full of under-performing money who are looking for a good investment vehicle. You can advertise for investors, but be VERY careful before doing this. You MUST talk to your attorney about local securities laws and how they affect what you say and to whom you say it. You want calls from investors, not regulatory agencies!
The process of raising commercial real estate investment equity isn’t rocket science, but it does involve some study and the help of some knowledgeable professionals. Take your time to do it right and you’ll be making more money (your own, this time) than you thought possible.
Commercial Real Estate Investment Decisions
Posted on 09. Jan, 2010 by admin in general
WEIGH YOUR RISKS CAREFULLY
When you decide to embark on a commercial real estate investment program, how do you get your start? We know that there is no such thing as 100% financing for commercial property, so where do you get your initial capital for that first purchase? One method which I have discussed before is to use Other People’s Money as your initial “stake.” Perhaps having partners is not the path you wish to follow in your investment program. That makes the other option using your own funds. Before you dip into your resources, however, consider some of the risks you face.
First, you are embarking on an investment program about which you have little practical experience. You may have read every book on commercial real estate investing ever printed and gone to every seminar ever produced in a hotel for a year, but you have no experience in the business. Do you really know what can go wrong? Do you realize what additional reserves you might need in case things don’t go as planned?
Second, consider the source of your equity. For most people who have done some real estate investing, they have probably focused on residential investment properties. Residential properties usually enjoy a large number of comparables to easily estimate value, financing programs for residential properties allow potential buyers to facilitate sales with little equity investment, and residential properties are usually less expensive, and therefore more accessible, to most people. If you are such an investor, then you probably have a pretty good pool of equity to tap. But how do you access it? Sell them outright and pay your capital gains? Sell them in a 1031 Exchange? Refinance them? Each option has its advantages and disadvantages.
Third, if you are like most people, your biggest chunk of equity is sitting in your home. There may be a great temptation to go get yourself an equity line, suck out the equity, and go buy a commercial property somewhere. Before you do, make sure to consider how the increased debt service of the equity line will affect your finances. Can you truly afford the payments if something doesn’t work out with your commercial investment? Yes, your commercial property will be producing income. However, the majority of that income will be used to pay its operating expenses and paying off the loan you arranged to acquire it. That doesn’t leave a lot left over for you in the initial years of the investment to pay down the equity line, which will most likely have a rate somewhere above the Prime rate (8.25% today).
The point is to consider your investment goals, your tolerance for risk, and your ability to live without the funds you are using for your commercial investment. Over time, your commercial portfolio should provide you with significant current income, a hedge against inflation, and net appreciation. You need to pay careful attention to how you structure your commercial real estate financing to minimize unforeseen risks and increase your chances of success. In your quest to achieve your commercial investment goals you need to carefully asses the impact of the financing decisions you make.
Some Tips to Finance Commercial Real Estate
Posted on 07. Jan, 2010 by admin in general
Here are some tips to get the finance for the development of commercial property.
1. One of the basic requirements to manage the financial resource or financial planning is to get the mobilization of various financial resources. It is essential to do proper financial planning for development of the commercial real estate.
2. The second most important thing is to get the proper documentation of your commercial real estate. It is prime necessity to get the finance from the financial institutions or banks. You must have to prepare a feasibility report and show the feasibility about the commercial real estate.
3. The financial institutions and banks analysis the risk factor before financing the commercial real estate project. On the bases of the risk factors the financial institutions or banks are finance the property. Once the appraisal gets over the financial institution or bank finance the commercial real estate property.
4. One the basis of the finance, the monthly installments of the property can be fixed.
5. Bank also need to cover insurance against the loan amount if in case your property damaged due to any types of natural calamities.
Financial planning for the commercial real state is the essential tool to get the cash flow in the development of the property. You need to prepare a feasibility report and proper documentation of your property.
Commercial Real Estate: Outlook at the Power Breakfast
Posted on 07. Jan, 2010 by admin in general
A GOOD OUTLOOK FOR COMMERCIAL REAL ESTATE IN 2007
I had the opportunity to sit in at the International Council of Shopping Centers (ICSC) annual “Power Breakfast” that featured some high powered institutional investors as panelists. They included Erwin Aullis, the Managing Director of Transwestern Investment Company, Stanley L. Iezman, the President of American Realty Advisors, Inc., and Glen Sonnenberg, the President of Legg Mason Real Estate Services. The panel was moderated by Mark Schurgin, the president of the Fesitval Companies.
These are some high-powered commercial real estate fund managers who don’t even get out of bed for a deal less than $50 Million! They were there to give us some of their thoughts on how the economy will impact commercial real estate investment, where interest rates might be headed in the coming year, and how buying and selling parameters have changed for shopping center owners.
Some of the thoughts that came from these guys were fairly insightful. Here’s what I got from the breakfast that I think you’ll find interesting:
1. Commercial real estate lenders are awash in money thanks to Collateralized Debt Obligations. These are derivative debt instruments that allow lenders to dramatically increase their ability to raise money at low overall costs.
2. The ageing of the population and the retirement of the Baby Boomers means that there is a large chunk of retirement money looking for alternate income opportunities … think “income property.”
3. Large funds are taking on more real estate, making it a legitimate “investment class” like stocks and bonds.
4. The REIT Index was up 35% last year, trouncing the S&P 500. Large urban areas can expect low cap rates in the months ahead, meaning that there are opportunities in secondary areas, but you still need to beware in “tertiary” markets, like Detroit and St. Louis.
5. Oversupply of commercial properties is not yet in evidence.
1031/Tenants-In-Common buyers are drying up, slowing price appreciation.
6. “A” quality commercial properties are becoming “commoditized,” meaning that there are real opportunities in “B” and “C” product.
7. The big players are getting out of condominium product at significant discounts to original asking price (which means you might get a nice home for cheap). This was in evidence in San Diego and South Florida. Residential projects are taking a back seat to commercial in the minds of the big investors.
There’s some good intelligence in these observations for anyone serious about investing in commercial property this year.
The final few minutes of the session were devoted to a group consensus on where interest rates and cap rates would be a year from now. While not a real prediction, the sense of the room was that the Prime Rate would be .75% to 1% lower, commercial mortgage rates for “A” product would be about .25% to .5% higher than today, and cap rates for class “A” properties would be essentially unchanged.
My conclusions are that there will be some opportunities to make money in smaller commercial properties in outlying areas and smaller urban markets. New construction and other “value added” projects should also do well. One caveat is do not make the mistake that rents will continue to trend upward, though. Stay conservative in your projections and you should be able to ride out any recession that might follow in the wake of possible Congressional tax hikes.
Trends and Problems of Commercial Real Estate Market Canada
Posted on 06. Jan, 2010 by admin in general
One of the most pressing issues for the market, of course, are the prices. According to the organizer of the roundtable, the company Business Analyst Group average sale price for April was: office – 39 000 euro / sq.m. Trade – 38 000 euro / sq.m. industrial – 9 000 euro / sq.m. the average rental rate offered on the open market in April was: office – 747 euro / sqm / month. Trade – 1218 euro / sqm / month. industrial – 158 euro / sqm / month. In 2006, in the Canada was put into operation 24 000 sq.m. space in the new shopping and leisure centers. In 2007 he had already put 30 000 sq. m., until the end of 2007 plans to introduce a further 70 000 – 80 000 sq.m. trade area as a shopping and entertainment center. In addition, over the next 3 years plans to build about 10 business centers and the same number of shopping centers. The rates of rent in the new sites is constantly increasing, the maximum rate for April 2007 reached 4500 euro / sqm / month. for commercial space and 1,770 euro / sqm / month. for the office. Cost of sales 1 sq. m. in certain categories of commercial property increased over the year in 2-2,5 times, for example, industrial warehouses and administrative buildings. Even in Moscow company today said that the market is overheating with us, the stakes are too high, the rent for our region is too high, and the purchasing power and throughput is still not at the level of major Russian cities. This reduces the attractiveness of shopping centers in the eyes of tenants – the start of discussions on Irina Fedchenko, director of consulting company Business Analyst Group, – for example, is very telling recent example of the opening TRK Greenwich for non-tenant commercial areas. In the past, the city of rumor, that the lease rates on commercial real estate collapse. And whoever invests in real estate, is now limbo: either invest or not. The timing of construction of new facilities or renovation of old protracted. The banks and leasing companies that lend to these deals, too, wonder: Does the alleged pay off dates announced for the construction projects. How long can increase rents and sale prices for commercial real estate in Canada? . Agreed that the stakes really high, and Alexander Filatov, director of the Canada branch of the company AlyansRegionLizing, explaining it immaturity, youth of the market started its development in 2004 alone, and formed a deficit of commercial real estate. Investments in commercial real estate lease at this stage has its own risk, but, in the view of Alexander, such a fall in prices, to talk about the risks of non-means, in the next two years will not be. Companies seeking to regain its image, which is characterized, above all, the notion of ownership. Sitting in his room or rent the space to sit in a good business center, or to withdraw somewhere in the suburbs – this is a meaningful indicator for business. Therefore, price increases will continue, perhaps with a little break, but in the coming 2007-2008, prices will rise. We discussed some of our business partners to back leasing transactions when they rent their premises for rent. They form the most growth of 5-10%. This projection raise rental rates for next year . Paul Vysotsky, director of OOO KLP-Invest, also predicts a rise in the prices of 10% in the segment of office real estate, which is positioned at the level of class V. In this format, no problems with the rental of commercial real estate there, and I think that will never, as well as benchmark average, – said Paul. According to Paul Seliverstov, head of the department for the management of commercial real estate company Kora-TK: Entering the new facilities on the market today is not much obrushit market prices prevailing at the date. If a shopping center will focus not on the market, but at prices that would like to see the investor, then yes, the problem may be, as in Greenwich. If the price will be set market, the commissioning of new facilities are not heavily affect the market, and napolnyaemostyu tenants will be all right According to Paul, in the near future even happen growth of the best sites. And this is related to entering federal players, and Moscow’s foreign trade companies. At the same time, graduation will be held at the premises of category A, A +, B, C and so forth, as in large cities. Prices for rooms with a good location to grow. The cost to other falls. A similar opinion Natalia Korchuganova, Director Panacea, considers that the average rental rates for retail space down to 30% that is due to the fact that increases the number of shopping centers: Those facilities that will be introduced in this and the next two or three years, will be in demand and will find its customers, for rental rates and investment. However, already changing the requirements for office and retail space, the entrepreneurs want to Superior, more interesting environment. Here’s this new sites to developers, investors and worth paying attention . The need for careful consideration of projects and said the team leader of investment operations branch VTB in Novosibirsk, Sergey Zemtsov and expressed confidence that everything will be fine and that any multipurpose facility for the Urals can pay off, provided that it would be quality. We believe – said Sergey – that can reduce their risks, even though now built many new facilities, if built conceptually clear shopping centers, with the Siberian or Moscow consulting firm. And another important point – there is nothing to sell, if it comes to shopping mall. Because, when at least five areas are sold, the management company having problems with the management. Moreover, the object which belongs to several owners, lower grade than the same object, but by one owner. If these conditions are met, it risks falling.
Opinions were roundtable on the prospects of the market divided, but with the concern of all power.
An important constraint on the market that encourage higher prices and increasing financial risks to the round table participants was named position of authority and bureaucracy. Alexander Filatov, Ltd. AlyansRegionLizing: When initially reviewed the transaction translation of non-residential floor space, turned to real estate agencies about assistance in this direction, and we called the timing about a year and two years. In Novosibirsk, when asked a similar question, saying: Week Three. Date of issue – it is not feasible! Such round tables should be conducted on the level of government. Because all are waiting. We have a project where land is not formalized, but we admit it, and the project involved the lessee, who said: Guys, the problems will not be because I have their relationship, so I have something I druzhu, and I pledge to completely make over half the land on you . We very much this development in the Kuzbass, relations are based on personal interests and personal tie. We are ready to shift the risk to the lessee. But this problem must be addressed, and can only deal with the authorities themselves. The same problem addressed and Sergei Zemtsov, OAO Vneshtorgbank branch in Novosibirsk: For us, both for the bank, it is important to reduce delays in obtaining permits documentation. In order to offer some advanced products need to get approvals cleared some attributed the timing and procedures for obvious . Many of the authorities accumulated and Andrew Verhoturova, director of Agency’s daily news: When they decide the issue with the administration? When they put 20 girls in the notorious Room 108, and there navedut order? When the work principle of one window, which is declared by the Management Committee of State property? Extends even to what is now the Committee for the Management of State property is not at all incoming documents, does not register, because the instruments need to keep as a policeman! That is, you have to bring a folder of documents that you have agreed for years, and you say: Leave a policeman!. What is the responsibility? What is included? When the answer? No one knows! Closing roundtable discussion on what can be done to simplify and accelerate the design of mechanisms allowing documentation. Victor Gunin, Inc. “Mechanics growth Leasing officials said little interest in promoting the project: In the usual administration official sits, and he is not interested in the economy of the project and did not understand that there will be. Why him? Until today, there is a system of governance, the more uncertain the same risks, higher rates of financing . Alexander Filatov, Ltd. AlyansRegionLizing invited to connect Chamber of Commerce and Industry, both in Novosibirsk, where biznesroientirovannaya Chamber of Commerce and Industry to help solve business problems. On the basis of individual complaints – it may lead to nothing – said Alexander, – a need for such structures, which would communicate to the authorities, but even better would be the government. Chamber of Commerce and Industry should, and even obligated to do so because it was created for this purpose . Paul Vysotsky, Ltd. KLP-Invest suggested that begin with the fact that all major developers with experience in lending, including real estate agency and so on, based on his own experience, first wrote a mechanism as to simplify all these procedure. Because the bureaucrats themselves, they do it will never be. Either way, but commercial real estate Sale is actively developing, and in spite of everything, in the next 3 years in our city a few new interesting projects, but in the meantime, perhaps the administration in the public sector will be established.
Commercial Real Estate: Tips For Saving Wealth
Posted on 06. Jan, 2010 by admin in general
You can advance your profits by investing in commercial real estate. On the other hand, if you’re not heedful, you can go bankrupt. Investors can make costly miscalculations. There are a few tips and hints that will help you avoid these miscalculations. If you know what you are doing, commercial deals are effortless to put together.
You must know Your market. You can see the rate of development in the area by doing a market analysis. This will also let you know if it is on the downfall. Distressed areas will not better the commercial investor. You might be capable of beating the real estate predicament, but success is less likely with a commercial real estate investment. You can identify whether or not the local job market is being damaged by doing some market research. The job market generally slows down when the market is in predicament. This is a sign for you to look else where for your commercial real estate investment. If the market appears to be on the rise, vacant store fronts might be a good object of significance. Several people favor starting a business in a growing market. Warehouses may not be in demand, however, a store front could sell rapidly.
Remember to inspect the complete commercial real estate property. You cannot do this alone. The necessary amount of money to hire a professional is insignificant compared the the amount that you can save by doing so. Don’t forget to have the property on which the building is positioned inspected as well. In order to start his own business, one man purchased a small repair shop. Although the property was moderately priced, the previous owner was given a citation from the state to have the subterranean fuel tanks removed. The new owner was in operation for six months, completely uninformed of this. Before the owner could reopen the business, the state demanded one hundred thousand dollars of repairs. He could have avoided this financial disaster had he spent a little money and hired a professional to do the inspection.
Be sure that the money you borrow is less than the amount that you can make back. Many investors borrow money as a means of buying their commercial real estate property. As long as the interest rate is appropriate this can be beneficial. An expert investor determines beforehand that the profits from the property will cover the loan. It is easy to forget the appraisal of real estate when you become overwhelmed by an exciting deal.
It is commonly known that you should stick to what you know. If you are knowledgeable with restaurants, buy a restaurant. Pay for a service station if that is what you are knowledgeable with. A commercial property should never be purchased if you know nothing about it. One instance where you can buy one of these commercial real estate properties that you are unfamiliar with is when you are lucky enough to have a business partner who is knowledgeable with the business. Turn your back and walk away if you are not so lucky. Other properties can make you plenty of money if you just probe the market.
If you want to make a lot of money in commercial real estate investments, you simply have to learn the market and follow some common guidelines. Don’t stray from your marketing plan. You can avoid predicaments if you stay within your budget.
Commercial Real Estate: Pointers For Hoarding Cash
Posted on 05. Jan, 2010 by admin in general
Investing in commercial real estate can enlarge your profits. However, you must be meticulous or you could go bankrupt. Costly miscalculations are made by investors. If you follow a few tips and hints, you can avoid these miscalculations. Commercial deals are easy to put together if you know what your are doing.
You have to know your market. Analyzing the market is a great way to see the rate of production in your area. If the market is on the relapse, this will inform you. The commercial investor cannot further from distressed areas. It is possible for you to beat the real estate trouble, however, you will probably not succeed with a commercial real estate investment. Do some research to discover whether or not the local job market has been affected. When the market is in trouble, the job market generally slows down. This is a forewarning for you to look somewhere else for your commercial real estate investment. Vacant store fronts might be a good object of significance if the market appears to be on the rise. Many investors choose starting a business while the market is growing. A store front may sell swiftly, while warehouses may not be in demand.
It is imperative that you inspect the entire commercial real estate property. You cannot do this by yourself. In comparison to what you can save, the required amount of money to hire a professional is insignificant. Keep in mind that you will have to have the property on which the building is placed inspected as well. One man started his own business by purchasing a small tolerably priced repair shop. The property was so cheap because the previous owner wanted to avoid paying a citation that was given by the state to have the underground fuel tanks removed. The new owner was completely uninformed of this after being in operation for six months. The new owner was forced to close down until he paid the one hundred thousand dollars of repairs that the state demanded. This financial disaster could have been avoided had he spent a little money to hire a professional to do the inspection.
The amount of money that you borrow must be less than the amount that you can make back. Many investors resort to borrowing money in order to purchase their commercial real estate property. This will benefit you as long as the interest rate is well-suited. An accomplished investor will not take on a project if the profits from the property will not cover the loan. The cost of real estate can be easily forgotten when an exciting deal becomes overwhelming.
The concept of sticking to what you know is common sense. Buy a service station, if you are knowledgeable with service stations. Buy a restaurant if that is what you are knowledgeable with. If you know nothing about a commercial property, don’t purchase it. You can, however, invest in one of these commercial real estate properties if you are lucky enough to have a partner that knows the business. Just walk away if you are not so lucky. You can find plenty of other properties that can make you a lot of money if you just scan the market.
As long as you understand the market and follow some common guidelines, you can make a lot of money in commercial real estate investments. Write down a marketing procedure and stick with it. If you stay within your budget, you shouldn’t run into any issues.
Commercial Real Estate Loan Myth Debunked!
Posted on 04. Jan, 2010 by admin in general
Setting The Record Straight
There is a metaphorical place in any business when the seeker of inside secrets reaches that signpost that says something like: “Beewair … Theyre bee Dragyns ahed.” Again, keep in mind I am being highly metaphorical, but I’ve been asked a number of times about a certain type of commercial real estate financing that makes me begin to suspect that someone is out there selling investment property “treasure maps” for $5.00 each! And you know just how much treasure you will find following such a map. So as a professional commercial real estate loan broker, I am here to set the record straight:
NO LENDER offers a 100% Loan to Value commercial real estate loan.
And I define “lender” to mean a source of capital that provides debt financing, secured by real property.
So for all of you seeking that 20% Seller Carry and the 80% purchase money loan on a property you think is worth three times the purchase price … please, join us back here in reality. If pigs had wings, they would fly. So, if a lender was willing to allow you to purchase a property on those terms, why would they need you? They would make a whole lot more money doing the transaction themselves!
Here is the reality concerning commercial real estate from a lender’s perspective: Commercial real estate is considered an investment, not a basic need, such as a roof over your head. Because investment real estate is “secondary” to a borrower’s personal residence, it is usually considered a higher risk loan.
Why?
If the fit hits the shan in a borrower’s personal life and money becomes tight, lender’s conventional wisdom says that the borrower will shift his resources to protect his personal residence ahead of his commercial investments. This may not seem immediately apparent when you look at the spread between home loan rates and Wall Street conduit rates (these commercial rates are actually lower than most residential ones). However, you need to check the terms to see the difference.
You can still by a primary residence with no money down and good credit. You can not purchase a commercial property without some form of equity investment. In most cases, the commercial lender wants to see a minimum of 15% equity in the deal, although you can find some that will allow 10% provided the property meets minimum debt service requirements. But good luck finding that situation in most good markets. Oh, and very few commercial loans go full term like residential loans (yes, I know that there are exceptions). Most are balloons at 10 years.
Yes, you can engage a mezzanine lender to fund almost all of the equity difference, but you are really going to pay for it either in points and rate or in some form of equity kicker … which takes us away from my definition of lender. And mezzanine lenders don’t make loans on the property itself … which is a whole other story.
Thus, it bears repeating: There are no 100% LTV commercial loan programs! Commercial real estate is for serious investors with equity to risk, a positive net worth, and an asset that a lender would feel comfortable encumbering. So the next time someone approaches you with a map to a pot of commercial real estate loan “gold” … save your money for a latte at Starbucks!
Commercial Real Estate in Canada
Posted on 04. Jan, 2010 by admin in general
Commercial Real Estate Canada and especially the business turnover
In this review I will focus mainly on real estate in Canada, while at the same time turn to some other countries: Spain, Cyprus, Croatia and Montenegro. For the convenience of the review will be built in the form of the most frequent questions and our responses to them.
1. Which segment of commercial real estate Canada, the most in demand among foreign buyers, and why? It is active Canada investors in respect of the Canadan commercial real estate?
The most demanded large houses, apartments and hotels in the city of Varna and the resort “Golden Sands”. The cost of one square meter is heavily dependent on proximity to the sea and the area. The highest prices in the vicinity of Varna and the resort “Golden Sands”. Finished houses are sold at a price ranging from 400 to 1000 $ / sq. m. You can buy at low prices, but can be repaired. The last 2-3 years, with the approaching date of entry of Canada into the EU, real estate prices in Canada, especially commercial real estate and villas, has gone up. Compared with 1999, they doubled. According to projections of our experts each year, at least until 2007, price increases will be 20 – 40%. Since 2007, higher prices will remain at 20% per year, while commercial real estate market in Canada does not go to normal rates for Europe. “Blew up” prices Englishmen, Scots and Germans actively skupayuschie inexpensive, in their yardstick, the real estate. This is followed by the Dutch, Scandinavians …
The Canada also are active in real estate in Canada, but not this what they showed previously buying property in Spain (in Spain it was, and still it continues not to purchase commercial real estate, and the purchase of elite real estate (conventional houses and villas Luxury)) and real estate Czech Republic. Currently, the activity of Canada observed in Croatia and Montenegro. Generally, Canada – a country for the high-flying businessmen. Sectors average hands, or simply displaced in the hope of employment will be difficult, as well as in Canada virtually no social programs that are compatible with the German or Belgian, and relatively high unemployment
2. Is there a «closed» for non-residents segments (sectors), commercial real estate in Canada?
Good question. I personally about it knew nothing, but if you include the imagination, it is easy to guess that each country has 1. sensitive sites, 2. strategic assets, 3. a priority interest in government. The findings do themselves
3. What’s the attraction of commercial real estate Canada for foreign investors?
Investment in real estate in Canada – this is a safe investment. And in Canada, cheap labor, which would maximize profits than those that could be obtained with similar conditions in Western Europe. Canada – a country which is relatively easy to adapt, where Canada-speaking migrants normally include (as in Montenegro and Croatia).
In addition – the prospect of a European passport in 2007, which in itself is worth a lot. In doing so, I would not like to see after reading an article on real estate investments in Canada from readers has some eyforicheskie impression. Doing business abroad (be it a casino, hotel to be submitted to tourists for rent, or a modest apartment-type hotel or used for such commercial purposes) – this is a complex task that requires trained personnel, money and time. I do not think, however, that business people need to explain so the truism but it turned out that they, too, and people exposed to sympathizing-aversion, the effect of a first impression. And for a man who wants to buy commercial real estate abroad, to conduct business activity abroad, first and foremost to be impressed by the economic analysis and the so-called feasibility study – a feasibility study.
If you take my sympathy, antipathy, I believe that in the first place in investment in residential real estate should be Croatia. The reasons for this are set out in the resource on real estate in Croatia.
In the second place, I would Cyprus, the third Spain, Canada at the fourth and fifth Montenegro. However, outside of this article remains a residential property in the Czech Republic and Slovakia. This is unfair, but in this review, I can not cover everything. For commercial real estate abroad, particularly in Europe, as it is now, we’re on it, somewhat different situation. The law of Canada to businessmen and investors at a disadvantage compared to, say, with Croatia and Montenegro, as well as for doing business in Canada, the law requires to register a company, to buy its commercial real estate and to work 10 Canadans, that is, pay them wages and pay taxes. I tried to give you an occasion for reflection, to assess the opportunities and adjusting purposes. The choice is yours.
4. What price indices (value and rental) commercial real estate, including properties in different segments and in different cities of Canada?
Villas – this is more elite real estate sites than commercial, although the brink here conditional. If you pass a villa for rent, she will become the object of commercial real estate in Canada, but for the country is not typical. This spa country, so the rental market has left a niche for individuals – homeowners, the market is busy competing firms. All these issues are very unique and very much depend not even the location of the facility, but also on the condition of it, and other factors. The highest prices in the vicinity of Varna and the resort “Golden Sands”. Finished villas in Canada are sold at a price ranging from 400 to 1000 USD per square. m. You can buy a villa and at low cost, but can be repaired. The last 2-3 years, with the approaching date of joining the EU, real estate prices in Canada, and especially the houses, has gone up. Compared with 1999, they doubled. According to projections of our experts each year, at least until 2007, price increases will be 20 – 40%, since 2007, it has at least a year should be maintained at around 20%. Further it is difficult to make predictions. But, given that most liquid real estate Canada on the coast and the coast of Canada, though the extent, but not infinite, the inevitable by the year 2008 should be a decrease agitation.
5. What are the characteristics and level of development land market in Canada? Are there restrictions on buying land and its use by foreigners? As the value of land varies in different parts of Canada?
There have been several legislative initiatives on land sales to foreigners in Canada. But they were rejected. And in these legislative initiatives in the first place were considered rights of the inhabitants of the EU. Citizens of Russia can not be on your passport to buy land in Canada.
6. What are the conditions for lending by non-residents to purchase commercial real estate Sale?
Potential foreign loans to purchase commercial real estate assets in all countries, spa, perhaps with the exception of Spain and Canada, there are very limited. Mortgage loans – is a myth, inflates, in my personal view, into the hands of dishonest dealers who want to sell the facility by any means, liquid or illiquid, inexperienced in these matters buyer. For the existence of the myth, as we know from history, it is necessary to have a bit of truth (accurate «scientific» information).
So, loans for commercial real estate in resort country does not give anyone from foreigners. Let’s look at this issue logically. Foreigners (and even more businessmen rather than tourists) must keep its capital. Otherwise, why would these foreigners in general need to take the State? Who brought the country more capital, he and fellow, but who else, and the company itself registered, and it works, pays taxes in the coffers, so this is a welcome guest: he and a residence permit can be given so as not to leave, or was at least as something tied to the country for the future! Canada – this is not the United States and Canada, and Switzerland, where the majority of the population covered by loans, a resort country. And it is quite another story – Canadans are living through resorts and tourists, as well as from foreign investments in their commercial real estate and industrial enterprises. Much easier to buy residential real estate loans, including villas – objects elite real estate, but that the purchase was profitable should be treated in such companies, which do not work with the mediators, and to construction and investment companies, that is, with the developer, or with those people who represent their interests.