How can I finance commercial real estate that needs completely renovated?
A reader recently asked a great question: I run a small business that has been operating for a few years and is profitable. My finances are good, my credit score is strong, and my home is paid off. I recently came across a commercial property that I wanted to purchase for $450,000. The property is in poor condition, so it would have to be rebuilt from the ground up. I went to Wells Fargo and was told that a deal like this would have to be paid for in cash. What options do I have?
When commercial real estate will need significant renovations / construction, it can be very difficult to get permanent financing.
In these situations, strong borrowers can typically obtain bridge financing.
A bridge loans are short term loans designed to enable both the acquisition of a property and renovations sufficient to qualify for permanent financing. These loans are more expensive than permanent loans, but you generally have them for under 12 months (whereas permanent financing might have terms of 20-25 years).
If you’re not planning on doing the needed renovations for some time, it will be difficult to obtain any financing. The collateral just won’t have much appeal to the lender.
One national lender that does both interim financing and permanent financing is South End Capital.
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