Finance Roll

Even though we have begun to see money start to trickle into the commercial markets, lenders as still being as picky as ever when it comes to who they will lend to, and on what properties. As a result, you may not be able to find traditional financing if you are trying to purchase a property that doesn't meet the high requirements of most conventional lenders. However, here are a few alternative ways you may be able to obtain financing:

Bridge Loans

Mezzanine (bridge loans) is used when a borrower needs some extra funds in order to bridge the gap between a primary mortgage's LTV and buyer's equity. Currently, Mezz lenders are accepting yields in the 10 - 12 percent range. Bridge loans can also be used towards properties that need to be renovated, or need to have their build-out completed.

Government Programs

Federally-supported entities (HUD, Fannie Mae, etc.) can also offer financing for borrower's looking to purchase multifamily property. These entities offer both first mortgages, as well as bridge loans. However, which entity you go with will depend on your long term goals.

Fannie Mae currently has very good interest rates, but also has some pretty excessive early payment penalties if you decide to sell or payoff the loan before the end of its term. In many cases, these penalties will outweigh the benefit of the lower interest rate.

Freddie Mac recently rolled out a new program which combines both a typical first mortgage, as well as a Mezzanine (bridge loan). The two loans combines make it possible to purchase a property with a LTV of up to 85 percent.

There is also the HUD 221(d)(4) program that not only has a high LTV, but also has a non-recourse 35-year term. This program allows the borrower to invest less cash up front, and because it's a longer term loan, also allows for much lower payments without any penalty for and early payoff. One requirement of the program is that it is only available on larger multifamily properties built in 2000 or later.

The Small Business Administration offers another great program to help business owners purchase commercial property that they will use for business purposes. The SBA 504 loan program allows a buyer to borrow up to $2 Million, and allows up to 90% financing. In order to qualify, you must use more than 50 percent of the property for business purposes.

Equity partner

In the event you are unable to find financing in these or any other loan program, you may be able to find equity partner that will help you fill the gap. In this situation you would take on the partner in a joint venture. Just make sure that when you draw up the terms of the joint venture, that you address how much if any decision making authority your partner will have, and what percentage of the equity/profits they will share in.