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3 things to know about commercial real estate funding in NYC

On Behalf of | Feb 12, 2024 | Uncategorized

Commercial real estate comes in many forms. There are multi-family housing units, retail buildings like strip malls, office buildings and even industrial complexes. Investing in commercial real estate can be a smart move for a business or an individual. Like residential properties, commercial properties do sometimes present opportunities for flipping or reselling them after making certain improvements. They can also generate a stream of revenue if the owner rents the property out. Commercial properties may provide facilities where a company can do business while simultaneously accruing equity.

Commercial real estate can be more expensive per square foot than residential real property, and oftentimes, funding is necessary to complete a transaction. What do prospective commercial real estate buyers in New York need to know about funding?

Interest rates are higher

When someone buys residential real property, there are two types of collateral that help them secure a mortgage. The first is the property itself, which the lender can reclaim if someone defaults on the loan. The second is the down payment. Buyers typically bring a certain percentage of the purchase price in liquid capital to show their earnestness and reduce the amount they finance.

Those financing commercial real estate purchases may qualify for 100% financing. While the property itself still serves as collateral, a down payment or other types of outside collateral may not need that necessary funding. Of course, the lender does pass the risk back to the party buying the property. Those purchasing commercial real estate usually pay a higher interest rate because of the higher risk of a loan default.

There have been market disruptions recently

The real estate markets in the United States are constantly adjusting to economic factors. In general, New York City tends to have relatively strong real estate markets in both the residential and commercial sectors. However, there have recently been issues that have impacted the lenders financing commercial real estate transactions in New York City. Pressure on these financial institutions may make it harder in the short term for would-be buyers to obtain the financing they desire.

Commercial contracts are highly complex

The real estate contract negotiated with the seller and the financial instruments attached to the transaction are highly complex. Even those with experience reading business may find commercial real estate documents confusing. Small changes in terminology and easily overlooked clauses can end up having a major impact on someone buying a property.

Having the right help when exploring funding options and negotiating with lenders or sellers can make a major difference. Seeking legal guidance is a good way to get started.