So you have chosen to enter the field where houses are bought, sold and rented every day and turned into homes to live in. Good for you. Real estate is the kind of business that never ends. The population is always on the rise, everyone needs a home, the bug of the property market has bitten us all, and people have actually made it into a business to buy houses to sell them at higher prices. Economic crisis may come and go, but real estate is here to stay. That’s because now people have understood the value of property. For them, it is more important to have a roof over your head, hopefully at a reasonable price, or having property to support you in times of financial need.Many real estate developers get into this field to make money. And they make it too. But this is possible only if they are legitimate and reliable. Their research, ground work, understanding of the market and customer needs should be flawless in order to provide their clients with the perfect house. Every customer need, big or small, must be taken into account. Nowadays, what everyone needs is a peaceful, safe locality whose houses have all the amenities and facilities that are needed for a comfortable lifestyle. That is not all. The vision of a perfect lifestyle does not end there.Residents are concerned about their health in all this pollution. They have to travel far in bad weather on bad roads, use poor and irregular transportation, and fight off other equally agitated people for their own space. The quality of food, medicines, infrastructure and basic living goes down drastically. This is the reason an integrated township established by a good real estate developer is goldmine now. It’s beneficial for the residents, renters/buyers of property, the large amount of foreign investors, and also the real estate developers. Every above-mentioned facility and all provisions like basic or first-rate shops, showrooms, parks, safety, cleanliness, transport, grocery stores, roads, electricity, etc are provided to the residents of these townships. They get it all under one roof. Some townships even have schools, recreations like multiplexes and malls and work organizations.The infrastructure and construction quality is flawless. The people form their own city inside townships and live secure, happy and hassle-free lives. Developers want the residents to experience all conveniences in one place but they ensure that the township is well-connected with other prominent areas and cities around too. Away from the over-burdened governmental residences and urban areas, residents live a healthier life with better standards than ever before.
What alternatives do you have when you are turned down for your commercial real estate loan by your bank or other lender? Your property has an appraised value, and you have equity in it that you’d like to cash in, or you’re trying to buy a new property and can’t get a lender to give you the purchase money loan. Maybe you’re a real estate developer who is used to getting your loans approved because of a successful track record, and can’t even get a meeting now. Or maybe you’ve been approved for a loan, but can’t stomach the rates or terms.We’ve all heard more than we’d ever want to know about the liquidity and credit crisis, but what may not be as obvious is that there is plenty of money out there–for the right deal. Change creates new opportunities, and when the traditional financial institutions can’t or won’t take on more risk, there are many lenders and investors who will. It’s all about taking another look at your existing assets, both in real estate and in liquid or paper assets, and making the best choice available. The following is a simple list of ways to create alternative financing possibilities:
1 Which institutions have turned you down, and why? Knowing what has not worked can turn you in the right direction, so make sure to ask as many questions as possible when you’re turned down, including asking if they can direct you toward a lender who might be able to do your loan. While most of the following criteria usually play some role in qualifying for a loan, some lenders focus most on CLTV or LTV (combined loan-to-value or loan-to-value), some on DSCR (debt servicing coverage ratio), some on IRR (Internal Rate of Return), some on Cap Rate, some on credit, and some on the overall financial strength of the borrower. Knowing this is often the key to getting to the right lender. 2 If your loan was approved but you didn’t like the rates and terms, see how much room there is for friendly negotiation, and don’t delay. It’s vital to keep on good terms with anyone willing to loan money these days–don’t burn a bridge if you can help it. I personally know many developers with “sticker shock” who expected to return to the approving lender several weeks or even months later (after they shopped around and couldn’t find anything better, or were turned down by everyone else), only to be turned down this time because the lender starts to wonder if there’s something wrong with the project that they didn’t see the first time, or because conditions have changed. 3 You may have to put more cash down if you’re making a purchase. Risk-averse lenders want a much more attractive LTV loan-to-value before they will step in with the rest of your purchase money funds. If you’re refinancing, remember that a risk-averse lender is very cautious about appreciated value and would rather see more of your own cash in the property. 4 If you don’t have the additional cash, take stock of your other assets. There are lenders who will loan against many different types of assets such as merchant accounts, future cash flow, marketable securities, other financial instruments, cross-collateral real estate, insurance settlements, and factoring receivables. For certain types of projects, such as energy and green-type projects, as well as films, there are tax credits, carbon credits and various types of bonds and partnered participation sponsored by municipalities and states. 5 When considering a purchase, or perhaps if you are designing a new project to build, you may want to look at which property types lenders are looking to finance before you make an offer. Even if you have talent, a niche, tons of experience, or a crystal ball that works, why swim against the current when you could go with the flow? 6 If you’ve gone through all your regular banking relationships, you may want to consider working with a licensed broker. Although you pay for the broker’s services, remember that a broker is keeping up with many more lenders and investors than you generally could, and they can help steer you toward those whose guidelines you fit. 7 One resource that can work well (if done with the right institution) is a leased financial instrument, such as a SBLC or a CD. Some larger real estate transactions can be closed either with this kind of credit enhancement, or with funds deposited in escrow when other funds will be available at closing. It’s also sometimes possible to run a useable line of credit against a certain type of leased instrument when the financial institutions on both ends agree to the terms. Be very careful to have approval from the bank providing the credit line prior to making any payment.
It’s important to be creative as well as realistic when trying to get a commercial real estate loan, and to be willing to accept the changing financial terrain while being open to new suggestions. Look for solid professional advice to improve your own personal and professional goals. Sometimes when you look at things differently, the solutions to the problem become much clearer and perhaps better than the plan you first had.Colleen Zaruba copyright 2009