Commercial real estate financing is a critical aspect of California real estate portfolios. It involves the provision of funds to acquire, develop and operate commercial properties. There are various types of financing options available, and choosing the right one can have a significant impact on the success of a project.
Traditional bank loans
Traditional bank loans offer a fixed or variable interest rate and typically require collateral, usually the property that is being financed. These loans are typically secured by a first or second lien on the property and can have terms of up to 20 years. Traditional bank loans are generally the most affordable option for investors, but they also have stringent lending requirements, including credit score, debt-to-income ratio and collateral requirements.
Commercial mortgage-backed securities (CMBS)
CMBS are a type of commercial real estate financing that involves pooling a group of commercial mortgages and securitizing them under a single security. These securities are then sold to investors in the form of bonds.
CMBS loans offer a high level of liquidity, and they are typically non-recourse, meaning that the borrower is not personally liable for the loan. However, they can often be more expensive than traditional bank loans.
Mezzanine loans are a type of financing that sits between traditional bank loans and equity financing. They are typically used to bridge the gap between the amount of equity a borrower has and the amount of debt a lender is willing to provide. Mezzanine loans are generally unsecured, meaning that they are not backed by collateral, and come with a higher interest rate than traditional bank loans.
Bridge loans are used to bridge the gap between the purchase of a new property and the sale of an existing property. They are typically used to fund renovations or upgrades to the property and can have terms ranging from six months to three years. Bridge loans are highly flexible, but are more expensive than traditional bank loans due to their short-term nature.
Private equity and joint ventures
Private equity and joint ventures are a type of commercial real estate financing that involves partnering with investors to finance a project. These investors typically provide a significant amount of equity capital in exchange for a share of ownership in the project. Private equity and joint ventures can offer a high level of flexibility, but they can also be more expensive than traditional bank loans due to their risk.