Real estate investment in California takes many forms. An investor may, for example, simply purchase shares in a real estate investment trust (REIT), or they may contribute to a real estate syndicate. In those cases, the investor entrusts their money to others and does not get directly involved in the development or operation of the real property. Other investors might like to be more involved in the day-to-day workings of a development project. Either way, California real estate investors should have some familiarity with commercial real estate finance. The following is a very general overview, which assumes that the development project involves building a commercial shopping center on unimproved land.
Short-Term and Long-Term Loans
Real estate development typically begins with the construction of improvements and ends with a completed, fully leased facility. This lengthy process might require multiple stages of financing. Commercial loans can be broadly categorized as short- or long-term.
Short-term loans provide capital needed for the construction of the facility, as well as operating costs during the “lease-up” phase. This type of loan might have a comparatively high interest rate and might include a balloon payment. Short-term loans include construction loans, which finance the actual construction costs, and any bridge loans that might be needed during the construction and lease-up phases.