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Bank not always needed to buy property with commercial leases

| Jun 6, 2019 | Commercial Leases

Some banks in the Los Angeles area and other parts of the United States currently have concerns about the state of the economy, and for this reason, they are not eager to lend money to investors. This has created new opportunities for alternative lenders to step in and meet the needs of investors who need capital to purchase properties featuring commercial leases. In fact, these lenders have already raised significant amounts of capital for secondary real estate financing.

Banks remain wary of financing non-residential real estate, even though more than 10 years have passed since the Great Recession of 2008. These institutions are especially cautious about financing new construction. This has caused more developers to become lenders themselves, essentially acting as shadow banks.

These alternative lenders usually have staffs that include commercial real estate experts — for example, institutional investors with global experience. The benefit of using these lenders is that they understand commercial development’s complexities. In addition, they tend to provide much better terms than a traditional lender does, and they also do not face as many regulatory restrictions as banks do. For instance, whereas a bank might refuse to go above a loan-to-value, or LTV, ratio of 60%, an alternative lender may be okay with an LTV ratio of 80%.

Whether an investor uses a traditional lender or an alternative lender to finance a property with commercial leases, the process of buying real estate can no doubt be daunting. In addition to dealing with the financial aspect of the deal, an investor must also navigate its legal components. Fortunately, an attorney can help to make sure that the investor’s rights are protected and that his or her best interests are upheld during such a transaction in Los Angeles.