Josh Schumann Discusses Financing Options for the Commercial Real Estate Sector

When it comes to the construction and commercial real estate (CRE), developers require an effective funding solution to ensure that projects are delivered both on time and to budget. As an investment and funding specialist with a strong understanding of cash backed financial products and the ability to create disruptive and innovative finance opportunities, in this article, I, Josh Schumann, Managing Director of Global GND will discuss the various funding options available for the sector.

Commercial Mortgages

Commercial mortgages are essentially a mortgage loan secured by commercial property, such as land, an office building, shopping center, industrial warehouse, or apartment complex. The capital from a commercial mortgage is typically used to acquire, refinance, or redevelop the asset.

Although commercial mortgages provide a viable funding solution for developments and the CRE sector, there are several downfalls, including rising interest rates which increase the cost of borrowing, as well as high deposits of between 20-40% of the purchase price of the asset. This high deposit often acts as a barrier to entry for new or small to medium developers seeking to capitalise on opportunities in the CRE sector. To add to this, the application process can often be time consuming and onerous, with the lender always taking a charge over the asset adding further complications.

Bridging Loans

Development bridging loans offer a short-term financial solution, allowing developers to promptly address the initial costs associated with a new project. By leveraging development bridging finance, developers can effectively kickstart their project without delay, bridging the gap until a more sustainable, affordable and long-term financing alternative is achieved.

Although I recognise the important role that development bridging loans play in the CRE sector, bridging loans always command a higher interest rate than commercial mortgages and are not suitable as a long term financing solution.

Construction Finance

Construction finance refers to capital used by developers, builders and construction companies to fill the gap between work completed and payment for that work and refers to a range of finance options used to fund and sustain new projects in the CRE sector.

One of the main advantages of construction loans is they provide a means for financing the cost of building, with the flexibility to cover all construction expenses, including materials, labour and permits. With a construction loan for the correct amount, you won’t have to worry about running out of money or halting a project in the middle of construction.

Unlike commercial mortgages, construction loans generally have few restrictions when it comes to approval, as they are designed to cover a specific aspect of building or renovation projects. Construction loan requirements are typically focused on the construction process rather than the borrower's overall creditworthiness, making it easier for borrowers to access financing.

Having said this, there are several disadvantages of construction loans, including higher interest rates and less attractive terms of normally 2-3 years, with large periodic payments falling due which can place additional stress on finances. To add to this, inevitable delays in construction can result in loan extensions, as well as additional fees and interest charges.

Global GND’s Finance Offering for the CRE Sector

Global GND’s funding solution for the CRE sector is significantly more attractive than traditional commercial mortgages, bridging loans and construction finance.

GND’s loans are unsecured, that is, they are approved without the use of property or other assets as collateral, which not only streamlines the application and approval process, but also significantly increases the success rate of applicants.

Due to our unique approach and the innovative nature of the financial instruments that we use to fund our loan, Global GND can approve high value funding between US$25m – US$5b, within less than 24 hours of application.

Through our unsecured loan facilities, we’re able to offer flexible repayment terms ranging from 1 to 8 years with interest rates of 4.5% per annum, non-compounding, which provides CRE developers with low-cost capital to develop their projects.

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