Commercial real estate loan for warehouse and logistics facility
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Real Estate Finance

While a commercial mortgage is typically utilized as a stand-alone product, real estate can also be added to an asset-based borrowing base certificate as part of a larger loan. Companies that own the facility in which they operate out of or have real estate investment holdings are good candidates for real estate finance.

Advance rates for real estate finance tend to be in 70% to 80% range of orderly liquidation value. Lenders require a recent appraisal for any property that they are providing funding against.  In some cases, lenders ask for a piece of real estate to support another part of a credit facility, this is known as boot collateral.  Is this case the borrower would not be able take any money against the property as it is already pledged.

If the property being financed is not owner occupied, the lender will require a certain amount of rental occupancy in order to ensure the property generates enough cash flow to service the debt. Lenders refer to this as debt-service coverage ratio (DSCR). Prospective borrowers need to at least show that they are generating enough operating income to cover all debts. Companies with negative cash flow will have to turn to private finance companies as banks require positive cash flow to approve a commercial mortgage.

If funds are needed in a hurry and borrower is planning a subsequent exit strategy, real estate is often used as collateral for a hard money loan. Hard money lenders typically charge higher annual interest rates as well as point against the loan balance at closing for this type of real estate finance. While hard money lending is not a permanent solution, it can facilitate short-term real estate transactions.

While commercial mortgage products operate on a stand-alone basis, companies with equity in commercial real estate can add these assets to their collateral borrowing pool and generate cash flow at bank rates. While there are several real estate options for companies that do not qualify for bank rates, they can be exponentially more expensive.

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