Where should I look for funding for a commercial real estate project?
I have a plan for a commercial real estate project. I've done all the financial analysis and written up a capital funding proposal. I've done all of the necessary legal legwork and starting getting soft confirmation for tenancies. Now I just need funding. I am wondering where I should go for funding. It is a small project &lt;$5 million, so I am thinking commercial lenders, local banks, local investors, but I feel like I am forgetting a lot of avenues, any help would be appreciated. Thanks
[{"id": "dfday48", "text": "The best thing you can do is find a good local debt and equity partner that really can understand the \"story\" behind your real estate proposal. Lots of larger institutional guys wont even bat an eye, let alone take a long serious look, at a deal that small. You are much better off finding a local debt partner and a selection of a few other investors (think high net worth individuals and family offices). Soft confirmation of tenancy will not get you very far in a competitive market, you should at the very least present real LOIs or leases for a lender to get serious about pushing you up the leverage curve. \n\nSome non-traditional sources of capital can be found in the crowd sourcing marketplace (Fundrise, CrowdStreet, RealtyMogul etc.) where you can find a lot interest in smaller deals less than 5MM. If you have no luck finding these partners I would look at using a mortgage broker that has some real experience placing debt and or equity in your market. There are some groups out there that specifically raise capital for smaller entrepreneurial deals like these. They will likely charge you a similar origination fees a bank will (1% or so) on top of what you will pay the bank in origination. \n\nThe last option I will suggest is looking at some hard money lenders (serious last case scenario here) because you will pay pretty outrageous fees and rates which will cut into your deal yields substantially. ", "replies": [{"id": "dfdju6o", "text": "One of my biggest issues is that I don't have 30% for a down payment that is expected for a traditional mortgage. I am considering attempting to try and set up a senior/junior position financing plan where a traditional lender (local bank for example) covers 70%, then 30% is covered by another lender, probably non-traditional. \n\nI am thinking I will follow this plan:\n\n1. Obtain Final LOI and rerun financial numbers using what is listed on the LOI\n\n2. Meet with junior lender to cover down payment. Who should I look to for this smaller down payment loan? \n\n3. Once I have approval from the junior lender, take my financial plan, LOI, and down payment loan to traditional lender for the rest of the money.\n\n4. Make an offer on the property\n\n5. Execute business plan\n\nDoes this sound like a good plan? Or should I make an offer before I have the money? ", "replies": [{"id": "dfdonx4", "text": "I think jsiegel3 has it pegged. The problem with the above is that no \"junior lender\" is going to finance a down payment. This needs to be an equity piece. Most first lien lenders do not allow for subordinate loans to be placed on their collateral (mainly CMBS debt).Given this is such a small deal it wouldn't fall in that category but the ethos remains. You would be best off to raise equity from \"friends and family\" and then find a debt piece post LOI (without the LOI, yields would be minimal). What kind of real estate? Credit for tenancies makes a huge difference in lending perspective.", "replies": [{"id": "dfih91r", "text": "Try looking for a CDFI in your area, they may have a product that permit higher leverage. You are going to have to have some cash in the game most likely. It is not 2005.", "replies": [], "depth": 4}], "depth": 3}, {"id": "dg0sovz", "text": "Most commercial loans are probably not hitting the 70% right now unless you have a great tenant.  I am guessing you should be assuming 50-60% LTV.  You can get mezz debt to cover your equity shortfall, but its major $$$ and high leverage is not always a great idea.  You are also probably looking at personal guarantees for this deal.  If you don't have the cash for the equity are you going to be able to cover that requirement to the satisfaction of your lenders?", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "dfhls8d", "text": "I think you'll need to get an equity/preferred equity partner(s), as no senior lenders will support a 100% combined debt deal (unlike some residential fix and flips).\n\nThat being said and when you're ready - for the debt piece, check out my company StackSource for free direct matches to commercial lenders based on your deal's parameters: StackSource.com", "replies": [], "depth": 1}, {"id": "dg0skwj", "text": "One of the key questions is who are you and why can you pull this off.  If you have a long track record of similar development deals your probably in a better position (but likely also would not be posting here).\n\nI see a ton of people put great proformas and budgets together but when the deal starts rolling things go sideways fast.  Banks/investors know this too well.  If you are going to go for cash it may be best for you to find a development partner to execute.  You can ride along and learn, and then on the next deal your probably good to go - or at least have a proven track record.\n\nAll that being said this sounds like a job for a regional bank.  They typically invest in the smaller deals and can typically be a little more flexible in the underwriting since they probably know the local market fairly well and have experience with similar deals.\n\nIf your looking for equity there are brokers our there than can help you source the equity, typically expensive, but if you need to get the deal done sometimes its worth the cost.", "replies": [], "depth": 1}]