Companies that choose to own all or some of their corporate real estate portfolio have four broad choices in how they finance their property. While some are largely tied to the nature of the property as a corporate asset, some turn the property into an income stream where it can then be financed along with other investment real estate assets.
Traditional Bank and Wall Street Financing
Traditional financing programs help companies borrow money for their corporate real estate. Most of these programs look at both the quality of the asset to be collateralized and also put a great deal of weight on the ability of the company's cash flows to handle the expense of servicing the debt for the property. At the smaller end of the scale, business-oriented community banks are frequently a popular source of debt capital. Larger properties or corporate real estate portfolio are frequently bundled together by conduit lenders into a financial instrument that gets sold to investors on Wall Street.
Small Business Administration Financing
Small businesses that are looking to borrow up to ten million dollars may choose to take advantage of special lending programs that the Small Business Administration offers in conjunction with lenders. SBA loans frequently offer extremely attractive terms, with some allowing you to buy a corporate real estate asset with as little as ten per cent down. Loans can have up to 25-year terms with no balloons, also making them attractive for the business that wants to buy and stay in a given asset.
Creating Income to Qualify for Investment Financing
Under this plan, an individual or shell company related to the business owns the company and leases it to the company. Since the property now has a lease and an income stream, it is eligible for financing as a piece of income-producing real estate. This financing scheme is popular with small businesses where the owner of the business personally owns the building that they lease to their business entity. While this structure is similar to a synthetic lease, there is a bit more separation between the occupant and the owner here than under a synthetic lease. Over the past few years of the recession, banks have started to move away from lending to borrowers with this type of situation. This is because borrowers whose income is derived, not from leasing the property, but from their business’ operations. So if the business goes under, the borrower has no other cash flows to cover the mortgage. You might still find some lenders who will participate in this sort of a loan, but be careful that, if you are able to secure the loan, you are able to make the payments regardless of the financial health of the business.
Sale-Leaseback Financing
In a sale-leaseback, the company sells the piece of corporate real estate to a completely unrelated owner and then leases it back. Given that many companies close or outgrow their building before they pay it off, leaving them in the position of essentially always making mortgage payments, leasing the building is more similar to owning it than it may seem. The benefits of doing a sale-leaseback are that they let you pull out 100 percent of the building's equity, they allow you to structure terms that work for you as the tenant and they are off-balance sheet transactions that are not considered debt, improving your business' operating ratios. Current users of the sale-leaseback include Walgreens, Wal-Mart, Home Depot and the Walt Disney Company.
