In years past, commercial real estate professionals and hopefuls had very limited access to funding for projects, even though they might have been very promising projects. This was especially true for smaller commercial real estate projects and for relative novices in the business, whom banks were historically less interested in. Today, the Internet has provided alternative sources for funding, so that smaller projects can become funded and even novice professionals in commercial real estate can become investment partners.
In an equity trading scenario, one partner will offer the equity from some other property in exchange for a share of the profits when the first property is sold. This arrangement might even be managed as part of a down payment on a project.
Crowdfunding is one of the newest funding sources for commercial real estate projects, and in this situation the entire transaction takes place online. Pre-vetted projects are described to a large number of pre-registered investors, and assuming there is sufficient interest, a project can be funded very quickly in this way.
There are still loans available from banks of course, even though they aren’t significantly more available than years ago. However, there are an increasing number of loan sources now, such as from insurance companies, credit unions, private loans, hard money loans, and commercial mortgage-backed securities.
Joint Venture Partnerships
In a joint venture partnership, one outside individual joins an equity group, and provides funding for a project in return for a percentage of any profits eventually realized. There can also be more than a single financier joining such groups.
Financing by Seller
There are certain cases where funding for projects (such as rehab projects) may be partly financed by the seller himself. This can be a desirable development, since the cost of such an investment is likely to be considerably lower than from any other funding source. It also keeps the seller involved with the property, and highly motivated to maximize maintenance.