October 9, 2023
Commercial real estate investment can be a lucrative venture, but it often requires significant capital. When investors need financing for their projects, they typically have two options: approaching their network of known banks or hiring a commercial financing advisor. In this article, we will explore the reasons why a commercial real estate investor might choose the latter option, delving into the various advantages of hiring a commercial financing advisor over relying solely on their local banks.
Commercial real estate financing is a multifaceted arena. Investors need to understand the numerous capital options available to them, including traditional bank loans, private lenders, commercial mortgage-backed securities (CMBS), and more. Each option has its own unique terms, conditions, and eligibility criteria. A commercial financing advisor is well-versed in this complex landscape, offering invaluable expertise to investors.
Commercial financing advisors specialize in the field of real estate financing. They stay updated on market trends, financing options, and industry developments. Their expertise allows investors to tap into the latest strategies and opportunities in the market.
Local banks obviously play a key role in community development and assisting investors with the capital needed. However, in some cases, they may have limited lending options or stringent qualification criteria. Commercial financing advisors, on the other hand, typically have extensive networks of lenders, including banks, credit unions, private equity firms, and other financial institutions. This network gives investors access to a broader spectrum of financing possibilities, increasing the chances of securing a suitable loan.
Without using a commercial financing advisor, an investor in the southeast region of the country, for example, may not know there are lenders in other parts of the country that will say “yes!” to their scenario or may offer terms they did not know were even available in the market. A great example of this is the availability of commercial 30-year fixed-rate mortgages or non-recourse loans, which can be a powerful financing solution.
One size rarely fits all in commercial real estate financing. Every project is unique, with distinct financial needs and goals. Commercial financing advisors work closely with investors to understand their specific requirements and tailor financing solutions accordingly. This level of customization can be challenging to achieve through a local bank, which often offers standardized loan products. In most cases, a borrower needs to understand where they “sit” on the financing spectrum, i.e., where their scenario best aligns with the capital markets. It is not always where the borrower thinks it is, and it’s the financing advisor’s job to help the borrower understand that and to get to closing as quickly as possible with the right solution.
Commercial financing advisors are skilled negotiators who can advocate on behalf of the investor. They can often secure more favorable loan terms, including lower interest rates, longer amortization periods, and higher loan-to-value (LTV) ratios. This can make a substantial difference in the profitability and feasibility of a real estate investment project.
Risk assessment and management are critical aspects of real estate investment. Commercial financing advisors conduct thorough due diligence to identify potential risks, such as market volatility, economic factors, and property-specific issues. They help investors develop strategies to mitigate these risks, increasing the chances of a successful investment.
Commercial real estate financing is subject to numerous regulations and legal requirements. Navigating these complexities can be daunting for investors. Commercial financing advisors have in-depth knowledge of these regulations and can ensure that all transactions comply with local, state, and federal laws.
Securing financing through a local bank can be a time-consuming process, involving multiple rounds of paperwork and meetings. Commercial financing advisors streamline the process by leveraging their relationships with lenders and expediting negotiations. This efficiency can be particularly advantageous when time is of the essence in a competitive real estate market.
While local banks may have their interests at heart, commercial financing advisors work exclusively for the investor. They provide objective advice and recommendations based on the investor’s best interests. This impartiality can be invaluable in making well-informed decisions. It is the commercial financing advisor’s job to find a solution that is in the best interests of the borrower while still being a great use of capital for the lender.
Commercial financing advisors have the negotiation skills and experience to advocate for favorable terms and conditions. They can often secure financing on more favorable terms than an individual investor negotiating with a local bank.
Investors may focus solely on obtaining financing, but commercial financing advisors consider the broader financial picture. They help investors assess how a particular financing option aligns with their long-term investment goals, ensuring that it fits seamlessly into their overall financial strategy.
In conclusion, while local banks remain very important to community investors and offer a viable source of financing for commercial real estate investors, there are compelling reasons why an investor might choose to hire a commercial financing advisor. These professionals offer expertise, access to a wide network of lenders, customization, risk mitigation, regulatory compliance, efficiency, and objective guidance that can greatly benefit investors in their real estate ventures. By working with a commercial financing advisor, investors can optimize their financing strategies and increase the likelihood of achieving success in the competitive world of commercial real estate.
