When you are looking to preserve capital while at the same time buying commercial real estate at a discount you should check out this example of how to finance 90-100% of the project costs.

An Endodontist (root canals) had been renting his space and the lease was about to expire, instead of negotiating a new lease his commercial Realtor showed him a distressed commercial building that was for sale across the street.   That building owner paid $1.3 million for the building in 2005 and had a commercial loan balance of $700,000.  The building  is now in a distressed with a 75% vacancy rate.

The bank was willing to accept an offer of $350,000 and the Endodontist was able to get an SBA commercial loan.

SBA loan example:

$350,000         purchase price of commercial real estate

$250,000         renovations and reserve for tenant improvements

$  50,000          soft costs, contingencies, interest reserve

$500,000         dental equipment

$   50,000         office equipment, furniture

$   50,000         working capital

$   50,000         closing costs and SBA guarantee fee (Which may be able to be waived)

1,300,000        Total  (Project Costs)

10% injection $130,000

SBA Loan Amount  $1,287,000

The business owner is out of pocket $130K.  If done conventionally they would have several commercial loans, one for real estate, one for equipment, and one for working capital.  The equipment and working capital would probably be at relatively high rates, would offer much shorter commercial term loans and not make the deal as sweet.  What’s worst is they would have to use almost twice as much capital to acquire the same asset.

Now the Endodontist can own the asset, offer new market rent rates  fill up the building quickly.  If the new owner is able to efficiently improve the space then they will have reduced their own monthly expenses and set themselves up for a big win.

The most exciting thing about this opportunity example, is that there are thousands of discounted commercial real estate assets on the market and more about to be on the market. You can take advantage of the once in a century commercial real estate implosion.