Can Non-Bank Finance Make Sense for Commercial & Industrial Property Investors?

Unlocking Hidden Value in Commercial and Industrial Investments with Non-Bank Finance

Savvy commercial property investors seek ways to unlock hidden value in a higher interest rate environment.

While non-bank finance is often more expensive than bank loans, there are times when it makes sense for investors to use it – and asset repositioning is at the top of the list.

Here we’ll discuss why banks don’t like repositioning and the benefits of non-bank finance for this play.

Why Banks Don’t Like Repositioning

What Is Repositioning?

Repositioning is changing an existing property to increase its value and make it more attractive to tenants and buyers. It can involve renovations and other improvements, changing a building’s layout, and adding new amenities like End-of-Trip facilities or a rooftop garden. It can also involve changing the type of use of the property from commercial to residential or vice versa.

Repositioning does inherently have a higher risk profile. You don’t necessarily have guaranteed tenants or buyers; the cost of incentives is often subject to negotiations and construction risks.

Banks don’t like risk.

They like safe and secure; tenants in place on long-term leases with minimal risk. Set and forget.

This uncertainty means that – unless you have a lot of equity and/or other sufficient cash flow sources – banks are less likely to offer financing for these types of projects.

The Benefits of Non-Bank Finance

While non-bank finance comes at a higher cost, it can offer significantly greater flexibility, higher loan amounts (less equity requirement), and faster approval processes.

Non-bank lenders usually have less hierarchical and smoother approval processes that enable them to make decisions quickly and tailor terms based on your specific needs and the intricacies of the project.

This is particularly useful for repositioned properties where quick access to capital and flexibility can make all the difference between success and failure.

Making the Best Decision for Your Investment Portfolio

Deciding whether or not you should use non-bank finance really depends on your individual goals and circumstances as an investor, based upon the specifics of your portfolio.

Investing in any real estate requires careful consideration and research – and repositioning assets requires even more, no matter what type of financing you seek.

At STAC Capital, we don’t just ask lenders what products they have on the shelf that suit normal properties. When repositioning assets, we work through strategic feasibilities and cash flows with our clients, which often result in two or three different valuation metrics at different points in the process – and then we build and align financing structures to suit the specifics of the project or portfolio. Sometimes this will be a single lender; sometimes, it is a mix of Senior and Mezzanine Debt or even Preferential Equity.

Whether you already own a tired asset with a poor vacancy that requires a turn-around or you’re looking for an opportunity to acquire and turn-around, we can help with a strategic financing structure to support your needs.

Get in touch with STAC today for smarter financing solutions for challenging situations.

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