Land is a finite resource, and as such it is typically one of the most stable forms of investing. The value of land is typically increased by development. It is common for commercial enterprises to develop their property with residential or business facilities, then sell the land for a profit. Commercial real estate financing allows companies to purchase land in the first place.
A Different Type of Lending
Commercial real estate financing is how developers get the resources to purchase real estate and build structures on their newly acquired property. This type of funding is usually sought from a non-bank lending agency. Rather than a single institution like a bank providing thousands or millions of dollars, a commercial lender will match the client with prospective investors. Because investing in land is so profitable, it is often relatively simple for experienced brokers to find interested parties that would like to fund new development projects.
The Importance of Development
Developing properties has become an essential aspect of modern living. Gone are the days when everyone built their own dwellings. Much more is understood about safety now compared to previous years. There are government mandated building codes that deal with fire prevention, earthquake readiness, and general structural integrity. One of the reasons that lending institutions can routinely grant millions of dollars to developers is because of the skilled nature of the work. Since there are so many regulations, it is difficult (but not impossible) for everyday people to physically build their own houses or stores.
Applying for Funds
The most common time to apply for commercial real estate lending is before acquiring property or prior to beginning construction. Part of the application process could be to provide details about the kinds of improvements that are planned for the land. The process could also entail a credit check or the study of previous development projects. Investigating a company’s candidacy is essential for the lenders because it gives investors an idea of how successful their investment will be.
Why Commercial Real Estate Funding
Typical commercial real estate financing options have low interest rate and high loan-to-value ratio. This means that it is affordable for the borrower so that can receive a profit from their development project as well. Most of the properties in the United States are built by developers after getting funds from lenders. Single family dwellings, apartment blocks, office buildings, hotels, and retail locations are all commonly built by developers. In order for new businesses to break into the market, their owners must be able to get the funds they need, which is why they turn to real estate financing.
Learn more about Prime Commercial Lending’s Commercial Real Estate Financing Options, Here!