Frederic Sealey on commercial real-estate project fundraising
Frederic Sealey – New York.
With the commercial property market booming across much of the western world, and emerging economies providing many investment opportunities, there has never been a better time to invest in commercial property.
Raising Capital is an important aspect of every business. To be successful in a real estate business, you need to know your finances well. According to Frederic Sealey, real estate business needs investment and finances to get you the best deals in real estate. One needs to have an understanding of real estate finances to raise capital. As investing in real estate has a lot of risks involved, one needs to carefully plan out finances to get the business funded.
Challenges and Various Ways to Raise Capital as Identified by Frederic Sealey.
— Frederic Sealey (@Fredericsealey) September 30, 2017
We all know the biggest single challenge facing developers with potential commercial projects is actually getting them funded.
To close a deal you need innovative financial techniques. If you wish to know how to raise capital for real estate you need invest your own capital. The first rule to raise capital for real estate is to invest capital yourself. Investments for real estate’s come from personal savings, equity, mutual funds and bonds. Your liquid assets are the building blocks of your real estate business. You can take a loan only when you have enough to invest.
To raise capital for commercial real estate, you need to raise your liquid assets. Once you know how much liquid assets you have, you need to consider other options to raise capital for real estate. Make a list of people from whom you can take a private loan. Family and friends are ready to help if you have a warm relation with them. To raise capital for real estate you need to know the market well. People will invest with you only if they know that you have means to pay them back or the market value of real estate is increasing. You need to research the market well and after that plan to raise capital for real estate according to your needs.
However, with growing competition in the finance industry, relaxation of lending rules, and coffers full of money to lend, raising the funds for large scale investment projects can be simple and fast – as long as those seeking to raise the funds know how to go about it properly. The first place to start looking is the Internet. Increasingly, deals are being done online – and done fast – as long as you understand the project financing process.
Frederic Sealey says investor pools are prepared to underwrite commercial property ventures – worth many hundreds of millions of dollars – with no credit checks, no complicated documentation, and no income verification. A commercial transaction is defined as one involving a commercial project which includes real estate as its foundation.
Typically, there are two ways in which loans are made available which I will make known to you:
The first is known as a “conforming” loan, when full documentation with limited concern for credit is required, while the second is “non-conforming” where there is no documentation required no credit checks, and no income verification. The Loan-to-Value (LTV) aspect of all commercial transactions is one of the major considerations when providing finance. With non-conforming loans, typically up to 90% of the value of the project can be borrowed, depending on the project type. For example, non-conforming reacquisition transactions require a maximum of 50% LTV for consideration. Conforming commercial transactions offer considerable extended options. Any LTV, regardless of transaction type, purchase or refinance, is usually considered, but the following are also taken into account:
Conforming transactions approvals rely heavily on what cash an applicant has vested in a submitted project. Substitutes for cash include either collateral or a winning pro forma, but not less. Equity in real estate is not generally considered a viable substitute. Regardless of what an applicant might choose to substitute cash with, in order to justify an approval, no substitute can ever be effective without a project that makes sense.
Frederic Sealey’s winning pro forma, if truly winning, can easily substitute for cash and ultimately lead to 100% LTV funding, though not without sufficient cash for closing. Commercial transactions generally take 30-60 days to close, provided they are approved and accepted. Obviously, uncomplicated transactions contribute to a speedier conclusion, whereas complicated transactions, or those requiring an inordinate amount of time to decipher, prolong the processing period.
Uncomplicated and complicated transactions defined:
Uncomplicated transactions are defined as those characterized by simplicity, such as a commercial building in need of refinancing. A more complicated transaction would be a development project, such as a new casino. Non-conforming applications are approved or declined much faster than conforming ones. Typically, an approval decision for a non-conforming transaction will be rendered within 2-7 days. Uncomplicated transactions are defined as those characterized by simplicity, such as a commercial building in need of refinancing. A more complicated transaction would be a development project, such as a new casino.
The bottom line with private investors is that generally they are sophisticated, non-predatory and do not jump on projects saddled with collateral or equity. They are; however, keen to do projects that make sense. Again, credit is of little concern on conforming projects and not required at all on non-conforming projects.