Types of Commercial Real Estate and Financing Options
If you’ve considered investing in commercial real estate (CRE) then you’re probably already aware that there is no one size fits all approach to financing this investment. Just like there are multiple property types and uses, there are also a variety of loan options available. Here are the different types of CRE and the financing options available to help you make an investment in them.
What are the Types of Commercial Real Estate?
CRE is real estate used for business purposes. This can include traditional office and retail space or industrial space. It also includes special-purpose use and multifamily residence use.
- Office spaces are classified as Class A, Class B, or Class C. These labels are based on different factors including location and use of the space.
- Industrial spaces include warehouses and factories.
- Special-purpose real estate stands apart from the other types of CRE because these structures are usually built by the investor for a specific purpose. Some examples of special-purpose real estate include storage units, car washes or churches.
- Multifamily real estate refers to an apartment building or any other dwelling not classified as a single family.
What are the Financing Options for Commercial Real Estate?
In order to finance your commercial real estate investment, it’s important to consider all the options available. Conventional loans, SBA loans, and Certified Development Company loans are all viable choices for funding.
- Conventional loans are traditional loans offered by banks or other lenders which are not backed by the government. They have strict qualification standards but tend to come with lower fees and better interest rates.
- SBA, or Small Business Association, loans are also funded by banks but unlike conventional loans, they do come with government backing. This added protection for lenders makes them somewhat easier for small businesses to qualify for. There are several types of SBA loans for real estate investment, each with its own terms for limits and uses.
- Certified Development Company, or CDC, loans are geared toward businesses trying to acquire assets for business expansion. This type of loan comes with a $5 million limit but offers long-term fixed rate financing.
Investing in commercial real estate can be an exciting and profitable avenue for any business. Whether seeking to expand and modernize your own space or add revue by leasing the property, there are multiple types of investment properties and financing options available to acquire them.
