Wondering how to find structured finance in California? Commercial real estate financing is often complex. In many cases, traditional commercial mortgage loans aren’t always the best solution for all investment properties and could leave a gap in funding.
As a result, many investors and property owners need other paths to secure financing for commercial real estate deals that go beyond traditional methods, including seeking out other investors. It’s in these particular areas where structured finance comes into play. It offers different options to secure capital for commercial real estate projects.
What is Structured Finance?
You may have a property with a traditional commercial mortgage. However, it’s not uncommon for there to be a need for additional funds due to project costs, especially if you’re looking to renovate or upgrade your property. In these cases, you may find your lender won’t extend additional financing, and you’ll need to turn to other solutions.
Structured finance offers alternative funding options outside traditional lenders such as commercial banks. In many cases, structured finance deals allow lenders to develop unique and bespoke options that may combine several different types of financing to provide enough capital for plans and projects.
These deals can help fill the gap between project costs and funds already on hand. The structure of the deals may include financing in the form of debt or equity investors.
Structured finance covers a variety of debt and financing options and may include, but aren’t limited to:
- Construction loans
- Bridge loans
- Mezzanine debt
- Preferred equity
- Credit facilities
- Joint ventures
- Permanent loans
These deals often come from beyond commercial banks and include different investors, including:
- Investment management firms
- Hedge funds
- Insurance companies
- Pension funds
- Credit unions
- Investment banks
When to Use Structured Financing in California?
There is no one-size-fits-all approach for commercial real estate investing. Because of that, there may come a time when moving beyond commercial banks and mortgage loans may be a better fit for your needs.
- Structured finance deals can help if you need to raise capital for projects beyond what a commercial bank can provide for funding for capital improvements to a property.
- A new construction project, such as a class A property, can attract a lot of interest from investors and may reduce your exposure to any funding gaps which a developer may otherwise need to provide.
- These deals may be of interest if you want to take on partners for additional funding who are just tied to the loan and not have to include them in business decisions.
What Are the Risks with Structured Financing
Before entering into any structured financing deal, consider the risks relative to your needs. For example, if you have a lower appetite for risk or equity sharing, you want to make sure you explore all of your options to find the best fit.
- Deals often have high-interest rates and shorter investment terms; if interest rates rise, it may cause cash flow problems.
- If the project defaults, preferred and equity investors will usually get paid first after the commercial bank.
- Investors involved with structured financing often demand higher returns; if your project doesn’t increase market value or rents, it may be challenging to pay back investors.
Other Factors to Take Into Consideration
Often, many complex layers go into these deals, so it pays to understand them and work with seasoned professionals who have previously completed these types of transactions.
- Ask your advisory firm if they have structured similar deals in your industry or with similar types of plans.
- Consider your risk level; structured finance deals often have higher interest rates to cover investor risk; however, project delays or defaults could put the entire project at risk.
- In some cases, to secure the best deal, you may need to take on equity investors, who are first in line for repayment after a sale or refinance.
- Review the deals’ timing; you may need financing more quickly, and structured financing deals with multiple complex layers could take longer to complete.
How to Secure Structured Financing in California
When looking to secure financing through a structured finance deal, it helps to work with an experienced firm with relationships in these areas.
That’s where Mandri Capital can help. We work with real estate investors in California to secure structured financing deals on multi-family, hotel, retail, industrial space, and more.
If you want to learn about Mandri Capital’s experience in structured finance deals, get in touch with Max Friedman by email or call 310-554-6401.