Creative Financing Strategies

Hi, I’m Stewart Heath, CEO of Harvard Grace.

Today I’d like to discuss commercial real estate financing. When you’re trying to finance a piece of commercial real estate the property itself will dictate how it should be financed. Even then there are many, many options. What I mean by that is every property is different there. There may be certain aspects of the property that lend itself to nontraditional financing techniques, which can really have an impact on the profitability, the net, and profits from the property itself.

Here’s an example. Sometime ago I did a piece of property. It was a development piece and there was timber on it. The timber on the back part was farmland. I’m not a timber guy. I don’t know anything about trees except that they grow tall. It didn’t occur to us that that timber had value and there were three or four acres. As part of the financing we arranged, we actually pre-sold the harvesting rights to the timber, which apparently was not going to mature for another five years, but we pre-sold those rights and received cash. I used that as a part of our equity contribution as a piece of that acquisition opportunity.

Another deal was an in-town deal where I was doing a condo redevelopment, and I wanted to buy the piece of property next door to control the space and that piece of property had a cell tower on it. As a part of that acquisition, I was able to sell the cell tower to a group that was buying those cars, a great big company, AAA credit, that was paying for the lease. That was an essentially solely stream of payments incoming to that, and got a pretty good chunk of change that went to the acquisition equity on that piece of deal too.

There’s also a lot of seller financing. You come across a lot of sellers who really don’t know what to do with the money, if you paid them everything. They want to earn a reasonable interest rate. As long as they’re reasonable and they’re willing to work with your other financiers that seller financing can actually work out.

I’ve linked an episode of the Old Dog’s REI network podcast. It might seem ancient history since it’s from the summer of 2019, back pre pandemic, but these guys have really got some really good stuff to say. I encourage you to take a look and listen to this episode.

I would love to hear some of your stories about some of your more creative financings that you’ve done and it would help everybody if you wouldn’t mind sharing.

Thanks a lot for listening. We’ll see you next time!