Financing Retail Commercial Property Deals
When financing retail commercial property deals, keep these tips in mind:
• Financing is always 100%
• You always contribute 100% of the money to the deal, but not always 100% of its money
• Financing is not just debt, although it can sometimes be
• You are the investor, so you get positive leverage
Most of the time, you have to go into debt on a property. It gives you leverage, if you can borrow at a lower interest rate than the general rate you’re earning on. However, you don’t want to put so much down on a property that it gets hurt.
You don’t want to have to climb too big a mountain every month when you make your mortgage payment. In fact, it won’t, if you do the deal right. You don’t have to hand over control of the property to your equity partners, nor, by structuring the deal correctly using equity financing, only hand over part of the cash flow to them.
Advice: When you learn about financing, don’t automatically think it’s all about borrowing money. It’s more about using available resources.
When submitting your property description for debt financing or raising money through equity financing, be sure to follow the guidelines of the governing associations for that type of property and potential lenders or private equity investors will take you much more seriously. I laughed.
For example, if you are a shopping center, you can get some important elements from this description from the International Council of Shopping Centers (ICSC). They tell you everything that is important regarding commercial retail property, from regional malls to strip malls. You can find them online at http://www.icsc.org. They can also provide information on how to run a profitable shopping center business.
If you’re just starting to finance retail commercial property deals, focus on smaller deals that require less money per square foot to build or buy than those mega deals. For example: In Orlando, Florida right now, you could build a commercial building for $120 per square foot, while in the same area you could build a median-priced home for close to $200 per square foot.
You can rent the commercial building for more money per square foot than you can get for the house, which is an advantage in favor of this type of property over residential for your investment. In a nutshell, it also describes why many ‘property gurus’ are ‘full of it’. The truly wealthy in our society own income-producing commercial property and typically do not “move houses” or invest in residential neighborhoods in war zones.
Here’s a quick note for those of you who want to build rather than buy. When purchasing land on which you hope to build a commercial property, hopefully it will already be zoned. By being legally ready to go, you won’t have to worry about entitlements and other factors such as infrastructure or engineering studies.
This makes one more deal, when financing retail commercial property businesses and for that reason we suggest that if you are going to build rather than buy down the road that you look for a property that is going to have a comprehensive plan permit, zoned for commercial use or Put in the comprehensive plan as a commercial future. After it’s titled that way, you can probably buy your land for a reasonable price and less hassle, on which to build.