The new year brings new plans, new hopes and new expectations. Navigating interest rates and other legal and economic changes will be important to achieve a profitable 2025. Please enjoy our quarterly newsletter discussing these themes, their impact on your business, and more.
COMMERCIAL REAL ESTATE NEWS
Interest Rates Are Still High. Now What?
Significant interest rate drops are unlikely soon, so as we head into 2025, buyers and sellers will have to continue to adjust their expectations. Good opportunities do exist in this market, but success will depend on understanding capital markets, maintaining lender relationships and structuring deals carefully.
Article courtesy of Commercial Property Executive – Full Article Here
The Corporate Transparency Act and Your Small Business
If you own a small business or family office, you could soon be required to report ownership details to the federal government—or face stiff penalties and possible jail time. Here’s what you need to know.
Article courtesy of Charles Schwab – Full Article Here
The Breaking Down Commercial Real Estate Investment Strategies
The best commercial real estate investors develop a customized portfolio of properties using common investment strategies. Core, core-plus, value-add and opportunistic strategies can help investors customize their portfolios to meet long-term goals.
Article courtesy of J.P.Morgan Insights – Full Article Here
ECONOMIC DATA
Borrowing Trends
Alternative and Private Money Loans: An Different Financing Solution
Alternative financing, sometimes called hard money or asset based loans, represent a unique financing option in the lending landscape. Unlike conventional loans offered by banks and credit unions, these loans are primarily secured by real estate and offered by private lenders or investors. Understanding when to use alternative loans can be crucial for investors and property owners facing specific circumstances.
What is Alternative Lending?
Alternative loans are short-term lending instruments that typically run for 1-3 years, secured by real property. These loans focus primarily on the collateral’s value rather than the borrower’s creditworthiness. Interest rates generally range from 10-15%, with points (upfront fees) of 2-4% of the loan amount. The loans can be interest only.
Advantageous Situations for Alternative Loans:
Quick Real Estate Opportunities
When investors identify time-sensitive opportunities, particularly in competitive markets, alternative loans can provide the rapid funding necessary to secure properties. While traditional loans might take 30-90 days, alternative loans can often close within one to four weeks.
Fix-and-Flip Projects
Real estate investors engaging in property rehabilitation projects frequently utilize alternative loans. The speed of funding and flexible terms align well with the short-term nature of these investments, allowing investors to purchase, renovate, and sell properties within a brief timeframe.
Bridge Financing
Property owners sometimes need temporary financing to bridge gaps between transactions. For instance, a business owner might use an alternative loan to purchase a new location while waiting for their current property to sell, avoiding missed opportunities due to timing constraints. Another example of the need for a bridge loan is when a property being purchased needs time to increase occupancy or stabilize before it will be considered by conventional lenders.
Construction and Development
Developers often turn to alternative loans for ground-up construction projects or major renovations. Traditional lenders may hesitate to fund these projects due to their speculative nature, and can take significant time to underwrite and close, while alternative lenders understand and accept the associated risks and can close much faster for shovel ready projects.
Important Considerations:
While alternative loans can provide valuable solutions, borrowers should carefully evaluate several factors:
Cost Analysis
The higher interest rates and fees must be weighed against the potential return on investment. These loans make sense when the projected profits significantly exceed the borrowing costs.
Exit Strategy
Having a clear plan to either refinance or pay off the loan is crucial. The short-term nature and higher costs make these loans unsuitable for long-term financing needs.
Property Value
Since alternative loans typically fund 60-75% of the property’s value, borrowers must ensure they have sufficient capital for the down payment and any planned improvements.
Alternative loans serve as a valuable tool in specific situations, particularly for real estate investors and business owners needing quick, flexible financing. While the costs exceed conventional lending options, the benefits of speed, flexibility, and asset-based qualification can outweigh the expenses in the right circumstances. Success with alternative loans requires careful planning, solid exit strategies, and realistic projections of investment returns. AAI Financial can assist you in determining whether or not alternative financing is right for your situation.
Recently Funded Transactions
Here are some of the opportunities we assisted our clients with last quarter:
- $3,810,000 Self Storage Facility – Central Washington – 75.00% LTV
- $1,330,000 Retail SBA 7(a) – Yakima, WA – 95.00% LTV
- $6,500,000 Agricultural Refi – 52.00% LTV
Contact us to learn how we can help you with your commercial property financing.
AAI has expanded the services we offer through AAI Real Estate.
AAI Real Estate Opportunities
AAI Real Estate has exclusive real estate offerings, and can assist you in purchasing, selling or leasing your real estate. For more information, view our current exclusive offerings or email us at info@aaifg.com.
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