Investment

How to Finance CRE Development Projects

finance CRE development projects

Whether you are buying an office space or expanding your commercial portfolio, getting the right finance in place is crucial to your success. While there’s a range of finance options available to fund your project, the lending process can appear complex. Let’s take you through some of your options, so you can make the right commercial property development finance choices:

  1. Types of commercial development loans
  2.  
    The CRE loan process begins when a developer or investor submits a loan request to a lender. Development lenders are often regional banks since they have a much better understanding of local market conditions and the reputation of real estate developers. Here are the three kinds of loans available to finance a real estate development project:

    a)A short-term loan that finances the construction and lease-up phase of the project
    b)A long-term loan that is sanctioned after a project stabilizes and reaches market level of occupancy
    c)A development loan that helps pay for building and development costs

  3. Loan underwriting
  4.  
    After the initial loan request is approved, the bank proceeds to underwrite and approval of the proposed loan. During this process, all aspects of the project are evaluated such as the construction budget, market conditions, development team and financial capacity of the guarantors.

  5. Commitment letter
  6.  
    Once the commercial construction loan is approved, the bank issues a commitment letter to the borrower. This document is similar to the term sheet but contains more details about the terms of the loan. Apart from that, the commitment letter is a legally-binding contract whereas the term sheet is non-binding.

  7. Loan closing

Commercial construction loan closings are intricate and involve a lot of documentation. To help the developer understand the procedural nuances better, a loan closing checklist is also issued along with the commitment letter. Due to the complexity of the process, this stage is handled by lawyers from both parties.

Commercial construction loans can become a complicated business and may not be easy to secure. The key is to understand the process and how commercial developments are evaluated by lenders. Our experienced and qualified team at Citadel can help you demystify the funding process and secure finance for your commercial developments. Get in touch with us!

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