Commercial Mortgage Financing

Commercial real estate financing relies on finding financing sources compatible with project requirements and providing funds that can be equity or debt to consummate the deal. Equity represents the infusion of cash into a real estate project of partners, joint ventures, etc. to provide the necessary financing that is needed and is not a loan. Equity contributors become co-owners of a commercial real estate project and their ownership interest is determined by their contribution funds, vehicle ownership, or partnership agreement. Participating capital may be cross-collateralized with other commercial real estate interests to meet the capital infusion requirement. The benefits of this arrangement are that the funds are not borrowed and are not required to be repaid. However, the equity partners participate in the negative and positive potential of the project and, depending on the agreement inherent in the company, may receive compensation during the course of the operation and/or when the project is sold. There may be terms indicating whether the equity partners receive compensation first before the distribution of any cash flows and other terms and conditions of distribution of funds or capital obtained from the commercial real estate project.

Debt is essentially a loan made to provide the funds necessary to satisfy the Loan-to-Value (LTV) required as a financing condition. The borrower must still provide a down payment or principal to qualify for financing, appease the lender by risking personal funds along with the lender’s funds, and meet underwriting requirements for the borrower’s funds share. There are many sources of widespread commercial real estate financing in various markets. They represent financing sources compatible with project requirements and provide debt financing as needed and play an essential role in the field of commercial real estate financing, examples of these sources are:

Commercial banks

Mutual Savings Banks

Savings Association / Savings Banks

Life Insurance Companies

Pension and Retirement Programs

private lenders

foreign lenders

credit unions

Mortgage Bankers

Mortgage Brokers

The latter two, Mortgage Bankers and Mortgage Brokers are primarily intermediaries between loan sources and borrowers with some Mortgage Bankers financing and/or participating in some of their deals or acting as correspondents for select lenders with the responsibility of being involved in the loan origination to closing and servicing process, including monitoring of the underlying collateral that secures the loan after financing. In this capacity, your involvement in a loan may include originating the loan, collecting payments, inspecting underlying collateral, selling loans to investors and/or supervising foreclosure proceedings, etc. Mortgage brokers offer offers to lenders and receive a placement fee for their service. His knowledge of the mortgage industry and relationships with lenders are paramount in increasing the financing success rate of projects as a result of evaluating financing requests and matching viable deals with interested trained lending sources.