“Am I paying too much interest?”
The current financing market for commercial real estate is completely different from the financing market pre-2008. Partly as a result of Basel III, financiers are now pursuing a more stringent policy, resulting in a thorough analysis of both the real estate properties and the underlying entrepreneurs and investors. More stringent requirements lead to more rejections. Where financing is available, price differentiation is constantly increasing.
The arrival of new entrants on the financing market has also made the price range more varied. The interest surcharges for senior loans from 40% to 75% loan to value may vary from 1.25% to 5%. Interest surcharges on more risk-bearing finance with a loan to value of 65% to 90%, such as Value-Add financing, Mezzanine loans or Junior loans, can easily vary between 5% and 12%. As a real estate investor, how can you ascertain whether you are getting value for money?
How do you know if your risk/pricing profile is correct? Financiers have instruments that calculate the return on a loan, but an investor is dealing with the return on the entire portfolio. You will naturally try to negotiate the lowest possible interest rate. It is difficult to determine whether you have made a good deal, however, simply because the structure of interest rates among financiers is often a black box. Even within a single financial institution, the rate may vary considerably between branches. This already indicates how difficult it is to achieve the most favourable rate, regardless of the other conditions. And do the other conditions allow for a dynamic investment policy?
In this world that offers little transparency, the solution is to engage a skilled and professional intermediary. These professionals negotiate real estate financing for clients on a daily basis and know the rates for each financier. The resulting optimisation of the financing conditions, such as interest, repayments, collateral and structure, means that your investment in an intermediary will more than pay for itself. Would you like to find out whether your existing financing ties in with the quality of your real estate portfolio, the resulting cash flow and your investment strategy? Don’t hesitate to contact us! We will be happy to carry out a non-binding quick scan of your portfolio and the associated financing.