Interest rates are at or near historical lows while at the same time only a limited number of Virgin Islands financial institutions are providing financing for commercial real estate, even to long time creditworthy customers with long histories of investing in commercial real estate. At BoltNagi PC we have seen financial institutions of all sizes from the small local banks to the large national banks curtailing most all financing of commercial real estate due in part to the antiquated banking laws in the Territory and at this point in time we see no relief in the near term.
CASH IS KING NOW! There are a myriad of creative ways to finance commercial real estate:
- Margin Accounts - If you have securities with either a brokerage house or bank, they will use your portfolio as collateral and will lend you 65% to 75% of the current value. A quick survey of firms revealed rates as low as 2%.
- Owner Financing-if a real estate owner has no debt on the property the owner can provide financing. If the loan-to-value is low then wrap financing may be available. This type of financing leaves the existing loan in place while “wrapping” another loan around the existing financing.
- Cash Value of Whole Life Insurance Policies-individuals with these polices can borrow money against the cash value at very favorable rates.
- ”Asset Based” Lending-financial institutions will allow the use of non-real estate assets as collateral for loans. Examples of collateral are business assets, accounts receivable and other non-real estate assets.
- Owner Occupied Properties-if you own a creditworthy business banks are aggressively pursuing loans to owner occupants when your business occupies more than 50% of the property.
- IRA/SEP Accounts-individuals can purchase commercial real estate within retirement accounts and can even use leverage.
Please contact Ron Pennington, Chair of BoltNagi’s Real Estate & Financial Services Practice Group to help you determine the most advantageous way to make your next commercial real estate purchase.