Real Estate

Real estate is the modern term for land and anything that is permanently affixed to it. The two major types of real estate are commercial and residential real estate. Commercial real estate involves the sale and lease of property for business purposes. Residential real estate involves the sale and rental of land and houses to individuals and families for daily living.

Commercial properties include: office, industrial, retail and multi-family rental property. Owning property rented to individuals or businesses can be a safe and profitable investment. Returns from property investment come from rental income, after deducting expenses, and from the increase in the value of property over time.
Financing sources for commercial and residential real estate include mortgage banking firms, savings and loan institutions, regional banks, insurance companies, and private investors.

Commercial real estate

Commercial real estate financing can take on very different terms, and the way deals are structured is based on a number of factors, including:
» Anticipated use of the property
»Anticipated returns from the property
»Geography
»Type of real estate
»Size of real estate
»Perceived risk to lender
»Market conditions
Business owners then need to examine the type of loans offered by lenders in accordance with their needs and their anticipated growth. The lenders remain primarily concerned with the level of risk they will be taking. Therefore, they must see the following documentation:
» Income and expense statement for the property demonstrating a solid income stream.
» Financial statements on all principals involved as owners of the property.
» Profiles of the management team.
» Property appraisal.
» Financial statements on the borrowing entity.
» Plans, including construction blueprints (if available) for the use of the property.
If the lender decides to offer a loan, a commitment letter is typically presented with their terms included. The loan agreement will usually include the length of the loan, interest rates, and what the loan is for i.e new construction, the purchase of an existing property, refinancing. As the borrower, the business owner needs to see that the terms will allow the business to grow and not derail such progress.

Residential real estate

Home equity loans are loans against the value of your home. If you are still paying off a mortgage, you can borrow up to 75 percent against the part of the home you actually own. When interest rates are low in general, home equity loans can be very appealing. Often home equity loans are used for major renovations or additions to the home, but they can also be used for an extensive range of other purposes. Another key attraction of a home equity loan is that the interest you pay is typically tax-deductible. Home equity loans are attractive to lenders because they see a secure lending risk with solid collateral, the house. They will therefore, provide lower interest rates for such loans. Borrowing to get out of debt and putting your house at risk can be emotionally very stressful and financially risky. The problem with a home equity loan is not a matter of coming up with the right numbers. It is deciding whether or not you can risk putting your house on the line. Using a home equity loan to buy something that will only depreciate in value or to take a vacation can be costly because you will still be paying off the vacation after it is over and have nothing additional to generate income. Therefore, home equity loans for items that will depreciate are not as common.

Types of Loans

Multi-Family Loans:

Loans with flexible terms ranging from 5-30 years are processed through customized programs for apartment building owners and cooperative corporations.

Commercial Mortgages:

Short-term and long fixed and floating rate loans.

Mezzanine finance:

A hybrid of debt and equity financing that is is typically used to finance the expansion of existing companies. Mezzanine financing is basically debt capital that gives the lender the rights to convert to an ownership or equity interest in the company if the loan is not paid back in time and in full. Mezzanine financing is advantageous because it is treated like equity on a company's balance sheet and may make it easier to obtain standard bank financing.

Construction Loans:

Construction loans are basically interest - only loans that turn into a balloon payment when the project is completed. They are monitored regularly by the banks/lending company to ensure that progress is being made. Construction loans are also available to builders, for the construction of "spec" or custom homes.

Residential loans:

Residential loans are often considered to be "non - assumable" and are generally focused on the borrowers credit and his / her ability to repay the loan.

Structured loans:

structured finance solutions is one of the few arenas that allow commercial real estate owners to dramatically impact leverage, efficiencies and economies of scale across all business lines including acquisitions, financing ventures and operating activities.

Syndicated loan:

A syndicated loan is a large loan in which a group of banks work together to provide funds for a borrower. There is usually one lead bank that takes a small percentage of the loan and syndicates the rest to other banks.

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