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Jacob Frydman on How to Find Funds to Purchase Commercial Real Estate

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Just as with home mortgages, banks and independent lenders are actively involved in commercial real estate

— The commercial real estate (CRE) fundamentals became stronger thanks to the robust job growth, an increased gross domestic product growth and favorable policies when it comes to regulations and taxation. Jacob Frydman, New York-based property exert and CEO of Frydco Capital Group, said that 2018 was when the economic growth was the strongest. This could have been seen in the sale transactions that reached $236 billion in the first 6 months of the year. This number is 4% higher than during the same period of 2017, a record year. The interest for CRE reached an all-time high, so Frydman revealed several funding options for those wanting to buy their first commercial property.

Just as with home mortgages, banks and independent lenders are actively involved in commercial real estate, said Jacob Frydman. Insurance companies, pension funds, private investors and other sources, including the U.S. Small Business Administration’s 504 Loan program, also commonly provide capital. In contrast to residential mortgages, which are typically made to individual borrowers, CRE loans are often made to business entities (corporations, developers, limited partnerships, funds, trusts, etc.). An entity is not required to have a financial track record or any credit rating, however the lender may require the principals or owners to provide a guarantee, or an individual or group with a credit history from whom they can recover in the event of default. If this stipulation is not required, and the property is the only means of recovery, the debt is called a non-recourse loan, meaning that the lender has no recourse against anyone or anything other than the real estate.

CRE repayment schedules also differ from residential loans, which are typically amortized, meaning the debt is repaid in regular installments over a period of time. A borrower with a $200,000 30 year fixed rate mortgage at 5%, for example, would absolve their debt after 360 monthly payments of $1,073.64. The terms of commercial loans regularly range from five years or less to 20 years, but conversely to home mortgages, the amortization period is often much longer. In a situation where an individual was lended a sum for a term of seven years with an amortization period of 30 years, the investor would make payments for seven years based on repaying the entire sum over a span of 30 years, followed by one final “balloon” payment of the entire remaining balance. For example, a $1 million commercial loan at 7% would require monthly payments of $6,653.02 for seven years, followed by a single balloon payment of $918,127.64. Of course, the length of the term and the amortization period will affect the rate the lender charges. Depending on the investor’s credit strength, there is often room for negotiation, but in general, the longer the repayment schedule, the higher the interest rate.

Real estate acquisitions and investments expert, Jacob Frydman is the Chairman and CEO of Frydco Capital Group and a frequent guest on Fox News, Bloomberg TV, CNBC and other television news outlets. Over the span of his 30-year career, Frydman has acquired more than five million square feet of real estate, and participated in transactions valued at over $2 billion. His prior notable transactions include the Global Crossing New York Headquarters, the Aetna Building, NBC Television Studios, and Two Dag Hammarskjold Plaza.

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