When navigating the complex worldof construction and commercial real estate (CRE), securing the right funding is crucial for ensuring projects are delivered on time and within budget. As an investment and funding specialist with a deep understanding of cash-backed financial products, I, Josh Schumann,Managing Director of Global GND, will explore the various financing options available to developers in the CRE sector, highlighting both their benefits and potential drawbacks.
Commercial Mortgages
A commercial mortgage is a loansecured against commercial property, whether it's land, an office building, a shopping center, an industrial warehouse, or an apartment complex. Typically, the funds from a commercial mortgage are used to acquire, refinance, or redevelop such assets.
While commercial mortgagespresent a viable funding option for CRE projects, they come with notable challenges. Rising interest rates, for instance, can significantly increase borrowing costs. Additionally, the requirement for substantial deposits—often
between 20-40% of the asset's purchase price—can be a barrier for small to medium developers. The application process is also often lengthy and burdensome, with lenders usually taking a charge over the asset, further complicating matters.
Bridging Loans
Development bridging loans offera short-term financial solution, enabling developers to quickly cover the initial costs of a new project. By leveraging these loans, developers can start their projects promptly, using the funds until a more sustainable and long-term financing solution is secured.
Although bridging loans arevaluable in the CRE sector, they come with higher interest rates compared to commercial mortgages and are not designed as long-term financing options.
Construction Finance
Construction finance is capitalused by developers, builders, and construction companies to bridge the gap between work completed and payment received. This type of financing supports new projects in the CRE sector by covering all construction-related expenses, including materials, labor, and permits.
One major advantage ofconstruction loans is their flexibility in covering a wide range of expenses. With the right construction loan, developers won’t have to worry about running out of funds mid-project. Moreover, construction loans generally have fewer
restrictions compared to commercial mortgages, as approval is often based on
the specifics of the construction project rather than the borrower’s overall
creditworthiness.
However, construction loans arenot without their disadvantages. They typically come with higher interest rates and less favorable terms, usually lasting only 2-3 years. Additionally, large periodic payments can strain finances, and delays in construction can lead to costly loan extensions, additional fees, and increased interest charges.
Global GND’s Financing Solutions for the CRE Sector
Global GND offers a funding solution that outshines traditional options likecommercial mortgages, bridging loans, and construction finance.
Our loans are unsecured, meaningthey are approved without the need for property or other assets as collateral. This approach not only streamlines the application and approval process but also significantly increases the success rate for applicants. Thanks to our innovative financial instruments, Global GND can approve high-value funding
ranging from $25 million to $5 billion in less than 24 hours.
Our unsecured loan facilities also offerflexible repayment terms, ranging from 1 to 8 years, with a non-compounding interest rate of 4.5% per annum. This provides CRE developers with access to low-cost capital, enabling them to develop their projects with greater financial flexibility.
