Commerc/apts deal Strategy& finance ideas? Construction new mixed use

3 Replies

I am hoping to get some suggestions on lenders/financing styles I should seek out and also overall deal strategy with a potential mixed use commercial building. Also overall strategy on how would you go about financing one like this?

Deal specs - existing commercial building in great mixed use area, retail first floor, 2-3floors apts above. Potential to buy, tear down. This has been occuring with neighboring buildings since a zoning change a few years ago, all others are fully rented and successful, so demand is great. Purchase $1Mil, Construction estimate $1Mil - $1.5Mil, so total cost $2-2.5Mil. Excellent cash flow above expenses that would push me over my goal for annual income from "passive" investments so it is a big deal I want to do and willing to invest in heavily. but also want to have the best strategy and know who to go look for about financing it.

Assuming a std 25% down requirement, I can afford it, but would be maxing out our investment capital (thus no new projects for a while or not with cash anyway, I do an occasional rehab flip here and there). And we have excellent personal credit.

So what are my best options to finance this, and who should I seek out? Any difference in funding/who to talk to, in the fact that we would be doing construction initially? Should I asume a 25% down payment, or other options to not sink so much capital into this one asset (besides a partner)? Most of my financing experience has been traditional non-owner occupied 30yr fixed loans, so I haven't done a true commercial real estate loan before.

Overall deal strategy in relation to finance suggestions? I currently own 4, 1-2 family rentals and 1 small 2-unit office building; with the addition of this one large asset I could reach my annual cash flow goals as noted. That said I also would love to not sink so much cash into one asset where it will be tied up, both to allow for another investment down the line, and for general security of having more cash accessible. Thoughts on strategies?
Thank you, I always appreciate everyone's insight and help!

Hi Justin,

What kind of cash flow goal are you trying to achieve.

Depending on age of the building tear down can get expensive as you have to mitigate asbestos and other items from going airborne. That increases costs versus standard demolition. When you have issues you have to tear down in stages carefully which costs more time and money.

For lenders existing mixed use developments are more risky to finance and ground up construction is extremely risky.

With you not having a track record in commercial much less doing ground up developments I do not see anywhere close to you just putting down 25% unless you partner with a developer that has experience and can back up the loan in case of default with trophy assets. Doing that you will have to give up some of the deal.

Why don't you just go for an existing property with a value add component or something fully performing. If you can tell me the numbers you are trying to hit I can suggest different avenues of real estate where it might be possible to achieve it.

I'm with Joel. I don't think there's any way you'll get 75% LTV financing through a standard financing sources. If had to guess, I'd say you'd be lucky to get 50%. If you're looking for a $2,000,000 loan, you'll need a net worth to match. Having a high credit score, while necessary, isn't going to be enough on its own. To make a deal like this work, you're going to need a lot of cash - including cash reserves above and beyond the loan.

You're far more likely to get financing on a commercial loan if the rents will support the payments. Doing something more speculative like this much harder to pull off.

Thank you both for the insight. I currently own one commercial property and several residential rentals with about a 6 year history. That said the tear down/build up of a mixed use would be new for me but it is in a market where I own 4 residentials now, a college town, and the small downtown area has had extremely good occupancy and high rent rates for many years, even during the market down swings. I think its a strong investment but will need to research what options are out there and think creatively.
Joel, I will definetly follow up with you via email to discuss our goals further, I greatly appreciate your offer to provide some advice!
Thank you

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