How can you finance corporate real estate?

1 Debt financing

Debt financing is the most common way to finance CRE, as it allows the borrower to leverage the value of the property and pay back the loan over time with interest. Debt financing can take various forms, such as mortgages, bonds, loans, or lines of credit, depending on the lender, the borrower, and the property characteristics. Debt financing can provide lower cost of capital, tax benefits, and flexibility to the borrower, but it also carries risks, such as default, foreclosure, interest rate fluctuations, and covenants.

2 Equity financing

Equity financing is another way to finance CRE, as it involves raising capital from investors who acquire an ownership stake in the property or the entity that owns it. Equity financing can be done through various channels, such as private placements, public offerings, joint ventures, or real estate investment trusts (REITs), depending on the size, type, and strategy of the investment. Equity financing can provide access to large amounts of capital, diversification, and alignment of interests with the investors, but it also entails dilution, loss of control, and higher cost of capital.

3 Hybrid financing

Hybrid financing is a way to combine debt and equity financing to create a more balanced and flexible capital structure for CRE. Hybrid financing can involve various instruments, such as preferred equity, mezzanine debt, convertible debt, or warrants, that have features of both debt and equity. Hybrid financing can provide advantages, such as lower cost of capital, higher leverage, and optionality, but it also involves challenges, such as complexity, subordination, and conflicts of interest.

4 Alternative financing

Alternative financing is a way to finance CRE that does not fit into the conventional categories of debt, equity, or hybrid financing. Alternative financing can include various sources and methods of funding, such as crowdfunding, peer-to-peer lending, sale-leaseback, land banking, or vendor financing, that are often driven by innovation, technology, or market conditions. Alternative financing can offer benefits, such as convenience, speed, flexibility, and niche opportunities, but it also poses risks, such as uncertainty, regulation, and competition.

5 Choosing the right financing option

Choosing the right financing option for CRE depends on several factors, such as the objectives, preferences, and constraints of the borrower or the investor, the characteristics and potential of the property or the project, and the availability and cost of capital in the market. There is no one-size-fits-all solution for financing CRE, as each option has its pros and cons and trade-offs. Therefore, it is important to conduct a thorough financial analysis and valuation of the CRE and compare the different financing options to determine the optimal one for each situation.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?