Commercial Real Estate Loans: Chinas regulations to curb new home purchases are fueling speculative demand

Efforts by the Chinese government to slow down commercial real-estate loans on multifamily properties are doing little to curb demand.

This year regulatory authorities in China issued a spate of new rules to slow down speculative home purchases. The new rules raise the minimum down payment required for mortgages and limit the number of apartments that each citizen or family can own.

However these new regulations are simply raising prices on multi-family apartments in many regions. Price increases that fuel speculation that home values will only continue to climb. This speculation has led to a wave of investment property purchases throughout China. Many speculate that the new restrictions will be lifted in the near future as the government attempts to spur economic growth. Should the multi-family market encounter any trouble there is a general consensus that the government will take drastic steps.“The government will spare no effort to make sure there are no big swings in the property market,” said Ni Pengfei of the Chinese Academy of Social Sciences.

The explosion in the multi family market stems from the Chinese governments increased reliance on household borrowing in order to fuel growth. As a percentage of GDP Corporate debt has reached an unsustainable 164 percent. Recently the government turned to household borrowing as a way to prop up growth. Early in 2016 the government relaxed its housing policies due to the economic slow down in China. President of the Peoples Bank of China Zhou Xiaochuan declared that residential mortgages were “relatively safe.” Mortgages for new apartments grew by 10 percent year over year immediately following his comments. Chinese households once carried relatively little debt, which once gave some assurance that the housing boom would not result in a wave of catastrophic defaults. But household debt has now peaked at 42 percent of GDP. Notably household debt in the US stood at 85 percent prior to the housing crisis and Chinas household debt may be rapidly approaching a similar number.

Commercial real estate loans and lending practices are fundamentally different in China easing some fears about an impending crisis.

Chinese Home buyers must still make a substantial 30 percent down payment on any mortgage they take out. In contrast the lending environment prior to the Great Recession was characterized by the issuance of mortgages with little to no money down. The incentive to expand lending to unqualified borrowers is lower too, as Chinese lenders have few ways to securitize and sell off large pools of loans. Many US households were over burdened by home equity loans prior to the recession. This type lending has not caught on in China.

Commercial real estate loans used to finance the construction new apartments are have become essential to fueling Chinas growth.

Activity related to the construction of new apartments now accounts for a third of Chinas economic activity. Any slow down in this sector could cause regulators to lift safeguards in order to boost the economy. Moodys states that 68.8 percent of Chinese household assets consist of real estate. A decline in home values would eat away at the assets of many Chinese citizens. There is the further danger that half of recent sales were for the purpose of investment, according to Ni Pengfei. Should these investments falter any related mortgages will likely default. If that happens the US will no doubt feel the effect as the economies of both nations depend so closely on one another.

Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701

About the Author:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

Technorati Tags: commercial loans,commercial lending,commercial mortgage

Commercial Mortgages: How to evaluate the different types of commercial mortgage

C-loans claims there are 12 distinct commercial mortgages. The following article groups these 12 types under three categories, permanent, equity and short term commercial loans.

Essentially conventional commercial mortgages differ from residential mortgages, in that commercial mortgages finance the purchase of commercial property. Standard commercial mortgages are sometimes referred to as “permanent loans,” and characteristically have terms longer than five years with some degree of amortization.

Commercial property owners can also take out second mortgages. However second mortgages are uncommon when it comes to commercial property. The terms of many permanent loans expressly forbid borrowers taking out a second mortgage. A more common practice is for corporations to borrow against shares ownership, known as a mezzanine loan. In case default mezzanine loans usually grant lenders the option to buy back shares ownership in a corporation and seize control of the companies property.

Some types of commercial financing are not even loans at all.These arrangements are termed equity partnerships. In a preferred equity partnership a “preferred” investor lends a corporation money for a fixed share of the company’s profits in the future. In addition there are joint venture and venture equity partnerships. Joint venture partners often finance the full price of a construction project in exchange for a fixed share of the properties future income. Joint partnerships are far more difficult to secure in comparison with venture equity partnerships. Venture equity partnerships often involve smaller originators, such as debt funds or real estate investment trusts.

Commercial mortgages differ from residential mortgages mainly in the variety of short term loan options avalable.

Bridge loan are short term loans which give a borrower time to lease or renovate a property. The terms of bridge loans generally run 1 to 2 years. Bridge loans are usually interest only and offer a considerably faster approval process than a traditional commercial mortgage. Construction loans are another type of short term commercial lending. As the name implies, construction loans are used for the purpose of building new commercial developments. Construction loans often have terms of 12 to 18 months, and are only released as a construction proceeds. Notably borrowers only pay interest on the amount of the loan released throughout the course of the construction project rather than paying interest on the total loan amount.

Construction lenders often require borrowers to take out unique and sometimes very costly commercial mortgages before any loan is approved, known as take out commitment loans.

Take out commitment loans are conventional loans taken out before the balloon payment on a construction loan comes due. Take out commitment loans are sometimes issued in the form of promissory notes. This averts the risk for a construction lender that a borrower will default when a construction loan comes due. These notes are referred to as forward and stand by take out commitment loans. These loans take on the form of a letter issued by a mortgage provider that promises to deliver a takeout loan within a period of 18 months after a construction project has been completed. Often these letters stipulate certain construction specifications or occupancy rates. They are usually expensive and often go for one to two points of the total loan amount. There are also stand-by take out commitments loans. Stand by take out commitment loans have far more onerous terms than forward take out commitment loans.

Commercial loans come in many shapes and sizes. It is important to have a clear understanding of what each type of loan entails and how each loan should applied. A conventional mortgage can help purchase property, a mezzanine loan or a bridge loan can help fund expansion and a construction loan is obviously used to get new projects off the ground. Take out commitment loans are usually meant to appease construction lenders, who take on the risk that a borrower may default when a construction loan comes due.

Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701

About the Author:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

Technorati Tags: commercial loans,commercial lending,commercial mortgage

Commercial lenders risk less by pressuring retailers into asset based loans

Commercial lenders are witness to the distress of retailers this year and are compelling many store operators to take on asset based loans over traditional financing. What does this trend indicate for the future of retail lending?

Retail is under increased distress this year. Last year retailers added about 17,000 jobs per month. Currently retailers are laying off roughly 9,000 employees on a monthly basis according to the Bureau of Labor Statistics.

Retailers not only have to compete with Amazon and other online sellers, they also have to struggle to maintain the glut of properties built during the ramp up to the Great Recession. Price Waterhouse Coopers estimates there is about 24 sq. ft. of retail space for every person in the United States. According to Co-star during the first half of this year 76 million sq. ft. of this space is out of use. Vacant retail space is fast approaching last year’s record of 82.6 million sq. ft. Analysts are already making drastic predictions for the amount of stores expected to close this year. Price Waterhouse Cooper conservatively estimates 90 million sq. ft. of retail space will be out of use by the end of the year. Credit Suisse is making even more drastic predictions. The group expects store closures this year to reach 8,640. These closures would amount to an unprecedented 147 million sq. ft. of vacant retail space.

Lenders are prompting retail borrowers to take out asset based loans in response. Asset based loans involve a pledge of a borrowers inventory or cash reserves as collateral. Once these loans were only considered for only the most distressed borrowers. The obvious pain of the retail sector has caused this type of lending to become more and more common. Retail was the largest user of asset based loans last year. In 2004 7.9 percent asset-based borrowers were retailers. Retailers now hold 10.2 percent of these loans.

Asset based lending puts commercial lenders, at the front of the line when retailers go out of business.

Lenders are most often paid in cash when asset based loans default. The issuers of asset based loans receive the majority of income from going out of business sales, as these loans involve a pledge of a borrower’s inventory as collateral. It can be expensive and time consuming for traditional lenders to foreclose and sell off vacant storefronts. The immediate guarantee of cash payments involved with asset based lending will give many banks greater assurance about offering financing struggling retailers.

Commercial lenders are obviously wary of financing retailers given the current economic climate. This will have a particular impact on lending to new retailers in the future.

Micheal Rose, an analyst at Raymond James, claims investors are not particularly concerned with banks lending to retailers. Rather investors are more concerned about bank exposure to commercial properties which may default. In the future lenders will be especially wary of financing new retail related construction projects. Lending to established retailers may continue, but new stores may find it difficult to secure start up funding. “ I don't think people are so worried that there cutting back or trying to get rid of what they have, but when new opportunities are coming up, at least some banks are being more cautious,” said Ann Scully CEO at Maryland based Howard Bank.

Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701

About the Author:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

Technorati Tags: commercial loans,commercial lending,commercial mortgage

Commercial Real Estate Financing: The Benefits of Mezzanine Loans

Mezzanine loans are a unique type of commercial real estate financing. The practice is difficult to define in layman's terms. This article will attempt to clarify what a mezzanine loan is, why investors like mezzanine loans and how borrowers could benefit from this type of lending.

Online searches yield a variety of esoteric definitions for Mezzanine loans. The arrangement involves a borrower paying a fixed interest rate and on additional percentage of future income to a lender. Mezzanine loans blur the lines between debt and equity investment making them somewhat difficult to understand.

Often such lenders get a share of ownership in a borrowers company or a fixed amount of the company’s future profits. In a typical mortgage arrangement a corporation pays its principal lender, before paying its investors and shareholders. With a mezzanine loan in the mix the borrower pays the principal mortgage, the mezzanine lender and then the shareholders. This type of lending bridges the gap between a company’s existing loans and its outstanding equity. This helps companies who are unable to take out additional loans or who do not have sufficient collateral. Mezzanine loans are particularly beneficial for companies with a strong cash flow, or established businesses that need a large amount of financing in order to expand. However this type of lending considered risky. Interest rates on mezzanine loans can range from 12-20 percent.

Mezzanine lenders get very specific and attractive benefits from these loans. Mezzanine lenders often get a share of ownership or equity in the borrowers business. Should the borrowers company succeed, these shares can offer returns to a mezzanine lender far above the initial loan amount. The high interest charged on mezzanine loans offers higher returns to lenders far above traditional loans. Mezzanine lending offers returns similar to equity investment, however the returns are often steadier in comparison. Mezzanine borrowers are usually contractually obligated to make interest payments. Equity investors often don't get similar guarantees.

Considering the expense why would a borrower use a mezzanine loan as a method of commercial real estate financing?

Mezzanine loans give borrowers the opportunity to borrow a far larger amount than they would be able to through a traditional loan. Borrowers could potentially leverage 3 to 4 times their current cash flow with a mezzanine loan. Another advantage for borrowers is that interest payments on outstanding loans are tax deductible. The higher interest rates involved with this type of lending means a higher tax deduction for borrowers. Above all mezzanine loans are far more flexible than traditional loans. These lenders often work with borrowers based on their current cash flow, with some even giving borrowers a “payable in kind,” interest option. This option gives borrowers who are unable to keep up with current interest payments the option to roll these payments into the principal of the loan and defer interest payments to a later date.

Above all mezzanine loans are a better type of commercial real estate financing when compared with equity lending.

Borrowing against equity is notoriously expensive, usually far more expensive than a Mezzanine loan. Mezzanine lenders often own shares of a borrowers company, but typically act as passive partners. Borrowing against a company’s equity usually dilutes a business owner’s ability to retain direct control over their operations. Mezzanine lending gives borrowers the opportunity to expand without directly losing ownership in their business. Businesses prohibited from taking out second mortgages will usually turn to mezzanine lending, as it usually preferable to selling shares of ownership or seeking out new investors.

Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701

About the Author:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

Technorati Tags: commercial loans,commercial lending,commercial mortgage

What do you do if your client has a bad credit score and wants to buy a home?

As a Real Estate Agent, the obvious answer is to very politely 'fire your client' and put them on your Christmas Card List.

Hopefully they will solve their credit issues and you can show them homes in the future.

Don't waste your time on this want-to-be buyer; they are never going to qualify for a loan. But wait; there is good news.

Recently there are a large amount of lenders who are now willing to take a risk on borrowers with bad credit.

When lenders consider a borrower's loan application, the lender looks at:

ü Down Payment,

ü Ability to Pay and

ü Credit Score.

There are a lot of potential clients/borrowers who have a good down payment, and great income stream, but for some unknown reason their life is a mess and their credit is in the dumpster. (Bad credit is typically someone with a FICO score less than 580.)

Today there are Arizona Lenders who will lend to an Arizona borrower with bad credit if they have a substantial down payment and can make the payments.

Rates are going to be high, and the lender is going to be picky about the type of property and use of property.
Also there are some dead stop issues, such as outstanding judgments, tax liens or pending litigation. (In most cases judgments and tax liens are paid in escrow/closing.)

So if you have a client with bad credit, check to see if they have a large down payment, typically 30% and are free of any judgments and tax liens.

If they are, and can qualify for the payment, they can get the home they are dreaming about, and you can close the deal and we can get them the loan.

If not, 'fire them, move one' and don't forget to say say Merry Christmas.

Dennis Dahlberg Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444

Technorati Tags: bad credit,home loan with bad credit

Texas Tel:     (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701

About the Author:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters and 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

Interest and Fees You Will Pay for Commercial Real Estate Loans Texas

Considering the long and arduous application process, you might be happy to simply get approved for any commercial real estate loans Texas, but you need to evaluate the cost of each loan. Selecting the loan with the lowest interest and fees will save you a great deal of money.

Whenever you are shopping for a loan, the first item that you look at is the interest rate and that is also important on commercial real estate loans Texas. The rate that you will be offered is going to depend on the type of business that you are in, the financial condition of your business and also you creditworthiness. In some cases your business will not have enough credit history to secure the loan and you will need to provide your personal credit and financial information to secure a loan as a guarantor on the loan.

The interest rate on commercial real estate loans Texas tend to be a bit higher than on a residential mortgage because of the increased risk that it represents to the lender. Because the value of commercial property is more volatile, lenders want to get a little bit better return on their investment. It is not uncommon to find rates ranging from 3.5% to around 6% depending on the type of lender that you are working with. The loan to value rate of the property can also influence the interest rate. The more money that you put down the lower the percentage of the price of the property you are financing. This means that the lender is willing to give you a slightly better rate. The primary reason is that they are concerned with the property holding enough value to cover the outstanding balance on your loan should you default. So the larger down payment means that you have instant equality and the lender is more confident that they will always be able to recover their investment in you.

Understand the Fee Structure and Payment Timeframe

In addition to paying interest you will pay fees to get commercial real estate loans Texas. You will be required to pay for the property appraisal, legal costs, the loan application fee, the loan origination fee and also the survey fee. Some lenders want these fees to be paid prior to the loan approval and others will simply apply the fees annually. If you are not sure that you will qualify for a loan then you will want to be careful to select lenders who will waive the payment of fees until after the loan is approved. Also, you will need to pay the appraisal and survey fees to all lenders as they are legally bound to complete those tasks themselves and cannot “share” the appraisal or survey documents.

Know the Total Cost of Borrowing Money

There are many terms and costs that are unique to commercial real estate loans. Knowing what all of these terms mean and how they will impact your ability to make payments is important. But the most important factor is knowing the total cost of the loan that you are requesting. Adding all of the fees to the interest will allow you to better compare your options and select the loan that is truly the best deal to meet your needs.

Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701

About the Author:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

Technorati Tags: commercial loans,commercial lending,commercial mortgage

Important Criteria When Getting a Commercial Mortgage Texas

When you are applying for a commercial mortgage Texas, it is important that you know what lenders are looking for. Knowing this information will help you to get the best possible rates.

As you have learned more about the commercial mortgage Texas process, you learned that your creditworthiness is an important part of the equation. Having a credit score over 680 and having no foreclosures or bankruptcies is a basic must to qualify. In addition, your business needs to be three or more years old to demonstrate stability. But you have also learned that a lender is going to be looking at more than just your business to determine if your request is a good risk. The lender will be evaluating the property that you are purchasing to make sure that it meets certain criteria.

The location of the property can play a big part in getting approved for a commercial mortgage Texas. Lenders know that most business owners will be leasing a portion of the property to tenants to assist in paying the mortgage. Having the property in a large metro area will make it a more desirable location for tenants. Building in remote areas, rural areas or places with poor access are harder to lease. This increases the likelihood of the borrower defaulting on the loan at some point.

Leasing History is Critical

Another factor that the lender will want to investigate is the lease term that could be in place. If there are tenants in the building currently, how long does their lease extend? Having a tenant in place from the previous owner is great but having them locked into a long lease is even better. This is simply another sign that the borrower will have extended income from the property and is likely to have less difficulty in making the monthly payments. In addition to any current leasing information, the lender will take into account any past lease history of the property. Have there been any long term tenants in recent years? Has there been a lot of tenant turnover in the past? Again, the lender is trying to gauge the desirability of the property from a tenant’s perspective. Having a strong lease history is a key factor in securing a commercial mortgage Texas at a great rate. It helps to prove that the property will have a positive cash flow in the future and that the borrower will continue to be able to make the payments on the loan.

Property Condition Counts As Well

Another important factor in how desirable the property is to tenants in the overall condition of the building and the grounds. If the property is in disrepair then it will be hard to sign tenants to a long term lease and even harder to keep them in place. In addition, a property that needs a lot of work can quickly turn positive cash flow into negative cash flow. Repairs and renovations can quickly eat up cash and make it difficult to make the mortgage payments. Knowing what a lenders looks for in a commercial property can help you to select a property which will meet your businesses needs and also appeal to a lender as a solid investment.

Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701

About the Author:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

Technorati Tags: commercial loans,commercial lending,commercial mortgage