Financing Strip Malls With Private Mortgage
“Financing A Strip Mall Or Plaza With Private Money Can Be An Effective Short Term Commercial Property Financing Option”
The financing of strip mall properties, like most commercial real estate, can be a time consuming and frustrating process when trying to arrange financing through a bank or institutional lender.
The reality is that you need time to be able to work through the requirements of a bank or institutional lender when it comes to a strip mall or plaza type property.
When you don’t have sufficient time, it can be difficult to secure the funding you require to close a purchase, refinance existing debt, or undertake some scheduled renovations.
Because most strip mall properties are income or rental properties, its going to be important in the long run to have lower cost financing in place to maximize your return on investment. There is not real arguing with that.
But the key with the last statement is “over the long term”.
In the short term, it may make sense to utilize slightly higher priced private money that you can get into place quickly and provide the time you need to arrange the optimal long term financing deal that is available to you in the market place.
Another challenge with financing strip malls at the time of acquisition is the lender’s view and assessment of available debt servicing.
In some cases, a plaza or mall location can be acquired at a good price because of the level of vacancies and/or the below market level rent being charged.
But regardless of what you can project the future rents to be, the lender is likely going to focus in on historical financials which could cause you not to be able to even qualify for financing with an “A” lender.
On the other hand, private lenders are more likely to have a smaller cash flow buffer requirement than a bank or institutional lender.
So it may make a great deal of sense to complete the purchase, secure your great deal with a private mortgage, and then get the rates and vacancies up to where you would qualify with a bank or institutional lender.
Private lending is short term financing that typically can be put into place much faster than a conventional commercial mortgage.
The added cost provides the benefit of speed and and actually getting financing in place, which puts you in a position to take advantage of longer term financing through institutional lenders at better rates.
If you are looking to acquire a plaza or strip mall or want to refinance or renovate one you already own and require financing to do the work, then I suggest you give me a call so we can go over your requirements together and discuss different short and long term financing options potentially available to you.