Ask Aries – Bank Financing vs. Alternative Capital Structures: Which is Right for Your Deal?
March 07, 2013
We’re often contacted by good borrowers seeking guidance because they have been unable to secure attractive financing on their own. Some have searched for several months without success for the right loan, unaware of the wide variety of financing options available to commercial real estate owners, or lacking an advocate with the right connections.When seeking commercial real estate financing, your long-term plans for the property are as important as the property value and operating history in determining the type of capital structure that will meet your needs.
- CMBS loans offer non-recourse financing at typically good interest rates; however, they are only offered in 5, 7, and 10-year terms, and carry heavy prepayment penalties, making them a poor option for a borrower hoping to sell the property three or four years from refinance.
- A borrower looking to buy and occupy his place of business could seek local bank financing, which requires 20%-30% equity available as a down payment, a 10 or 20-year term, and a fixed or floating interest rate.
- If the borrower is a small business owner, however, he may qualify for a Small Business Administration 504 (SBA) loan, allowing him to secure 50% of the project cost from the bank, a fixed-rate second-position loan worth 40% of the project cost issued through the bank but guaranteed by the SBA, and contribute just 10% down payment.
“There are many new private capital sources in the market offering non- recourse bridge money, A/ B financing structures up to 85% LTV, JV equity and other solutions for real estate assets in transition,” says Aries Capital Chairman and CEO Neil Freeman, “Long term non- recourse fixed rates are the lowest in the past 50 years. It is a great time for a Borrower to capitalize on Aries’ long term relationships and in-depth understanding of the Real Estate finance markets.”
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