Sources For Commercial Real Estate Financing

Real estate market, like any other business, is also affected by the market conditions. In spite of this fact, the real estate market has been on the rise and one of the beneficiaries of this movement are the lending or financial institutions that are disbursing loan products to cater to this demand. These institutions are doing brisk business through the loan products specifically designed for the commercial real estate financing. The major source of money for these lending institutions is either the pension funds or from the insurance companies. These pension funds or insurance companies do not deal in commercial real estate business directly. Though there are other sources of money for these financial institutions like the money diverted from the share markets, these two sources remain the biggest investor in the real estate markets.

One of the major sources for money has been the insurance companies who have been financing the commercial real estate business. These insurance companies normally allocate twenty to twenty five percent of their assets towards financing commercial real estate. There are two mechanisms of doing this. Under the first mechanism, these insurance companies deal directly through their local or regional offices. However, this is not a preferred route for the insurance companies since selling a loan product involves a completely different skill set and hence needs a specialized team. The other mechanism is through a correspondent scheme, where these insurance companies employ the commercial mortgage bankers or even local commercial real estate brokers who negotiate with the borrower directly. The commercial real estate brokers play an important role since they are well versed with the local real estate scenario as well as the condition of the financial markets. This knowledge helps them to tailor the loan products realistically to suit the needs of the borrower.

Irrespective of the source of money for these loan products, it is important to note that there are certain documents which all the financers keep a close tab on. Some of these important documents are the detailed plan and survey of the property, the appraisal of the property, the financial statements on the liabilities of the borrower and the income and expense statement for the property. These information help the lending institutions take the financial decisions on financing a property. It is also in the interest of the borrower that he also understands the importance of these documents since these can help him in finalizing his options as well.

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