Law Office of Henry B. LaTorraca Civil Trial Attorney

How commercial real estate debt financing has evolved

Nearly a decade after the Great Recession, commercial real estate investors in California and elsewhere should know that banks are making loans. If banks are not making loans in a given area, alternate loan opportunities may exist. Banks are largely lending because of foreign demand as well as a demand for apartment space. Low interest rates are also playing a key role in their willingness to make loans.

Alternative lenders may play a role in helping investors get financing until a bank is willing to lend to them. They are no longer seen as shady or not worth working with like they were in the past. A mezzanine or bridge loan can come with a relatively high loan-to-value, and lenders aren't as conservative as a bank may be. Some lenders are transitioning from development deals to debt deals as the market becomes more lucrative.

Increasingly, borrowers have two choices when it comes to getting a loan. They can choose from price leaders such as traditional lenders as well as insurance companies. It may also be possible to choose from balance sheet leaders that include debt funds or other alternative lenders. Price leaders tend to offer a lower loan-to-value while offering lower interest rates. Balance sheet leaders may be best for those who need a higher loan-to-value even if it means paying a higher interest rate.

Investors may have to use land, equipment or a commercial building itself as collateral to get a loan. If the loan is not repaid, responsible enforcement of liens may require the lender to foreclose on the property. However, it may be possible to speak with an attorney about how to resolve the issue. This may make it possible to keep a property while also staying current on commercial loan obligations.

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