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Essential Funding Solutions

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Real Estate Investor and Small Business
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February Funding - Construction Loan

Essencap successfully closed a one million construction loan in Sunset Park, Brooklyn, NY 

After the building is completed, the building will be a four level mixed used with retail and apartment. The subject consists of two-story mixed-use property with 2,000 square feet.  Upon completion, the subject will have a total of 4,660± square feet above grade with three residential units and 1,221 square feet of commercial space. 

We are pleased to announce that Essencap successfully arranged a commercial real estate loan. The loan assists our first time construction client to secure 100% of the construction cost.  We are honor to represent our client, the building has been with the family procession over ten year. Upon completion, the family is keeping the building s rental property.

The subject property locates in area known as Brooklyn Chinatown. The area established in the Sunset Park area of the New York City borough  of Brooklyn. It is one of the largest and fastest growing ethnic Chinese enclaves outside of Asia, as well as within New York City itself. 

February Funding

Essencap successfully closed a $1.425 million mixed used building in Forest Hill, NY.

The subject property is a two-story mixed used building containing three apartment units and two commercial units. Total gross building area is 3900 square foot.

Our client operates a comic store on the first level. When the opportunity comes up when the landlord asks store owner if their interest. Our client proceeds with the purchase transaction and we are proud to be selected in assisting our client in securing the financing.  

The subject property is located in the Forest Hill section of Queens, NY. Forest Hill is a primarily residential neighborhood improved with single family homes with mid-rise apartment buildings and Coop/Condo buildings on the side street sprinkled in, with low-rise and mid-rise residential apartment buildings on avenues, which also contain many ground floor commercial tenants.

Blog
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The Basics of Commercial Real Estate

Commercial real estate is property used for business purposes. Most often, commercial real estate is leased to tenants to conduct business, or the landlord is conduct business in collecting rental income. This category of real estate ranges from to apartment building to shopping center or even hotel.

Commercial properties may refer to:

  • retail buildings
  • office buildings
  • warehouses
  • industrial buildings
  • apartment buildings
  • hotel and motel
  • student housing
  • “mixed use” buildings, where the property may have a mix, such as retail, office and apartments.

Investing in commercial real estate can be rewarding. Investors can make money on a monthly basis by collecting the rental payment but also through property appreciation when they sell.

Investors can invest directly in to the property as investments and become landlords with active management. People best suited for direct investment in commercial real estate are those who either have a considerable amount of knowledge about the industry or who can employ firms who do. Commercial properties are a high-risk, high-reward real estate investment. 

Benefit in Commercial Real Estate investment. 

Rental Income. The number one reason investing in real estate is the earning potential. Real estate investment generates a return for the investor. Depending on the area, the return range form different asset type and to geography area or neighborhood. 

Business relationships. Small business owners generally take pride in their businesses and want to protect their livelihood. Owners of commercial properties are usually not individuals, but LLCs, and operate the property as a business. As such, the landlord and tenant have more of a business-to-business customer relationship, which helps keep interactions professional and courteous.

Tenant maintenance . Depending on the type of property and the lease type, if the tenant operates an business. The tenant is more involve in the property maintenance. For retail business, it is the tenant self interest to keep the property supreme for their consumers. As a result, commercial tenants and property owner interests are aligned, which helps the owner maintain and improve the quality of the property, and ultimately, the value of their investment.

Price appreciation. The real estate value has outplace inflation very well in the past. In some area, the value has increase faster. Due to the population growth, construction limitation and high cost of construction, new buildings can be a limited supply. We continue to expect the real estate value on the increase. The downside is the liquidity when once wants to sale the real estate.  Most often not easy to find new buyer, financing option can be limited due to increase banking regulation. And periodically, economic can hit recession, and the real estate market can be on a complete halt. 

Lease type/Owner involvement . Unless the investment is in apartment building, tenant typical operate an business. Businesses usually go home at night, the operating hour is limited. Real estate owner shall not hear from business tenant on non-operating hour. 
In some case, investor might have triple net leases. The general concept is as a property owner do not have the responsibility of the property expenses. The lessee handles all property expenses directly, including real estate taxes. The only expense you’ll have to pay is your mortgage. Companies like Banks, Retail Shop like Starbucks, CVS or TD bank typically sign these types of leases, as they want to maintain a look and feel in keeping with their brand, so they manage those costs, and you as an investor get to have one of the lowest maintenance income producers for your money. Strip malls have a variety of net leases and triple nets are not usually done with smaller businesses, but these lease types are optimal and you can’t get them with residential properties. 

 

Issues in Commercial Real Estate investment. 

Capital Requirement Purchasing a commercial property typically requires more capital up front than acquiring a residential rental. Additionally, the financing options can be limited. Although there are a secondary market where lender can sell their loan, however for the smaller type investment bank needs to lend with their own capital and the loan sat on their balance sheet.  Also the a larger capital expenditures is required. Any repair or mechanical replace will be a larger scale such as large roofing space for repairs or a higher capacity furnace. 

Professional help required. Property management companies can charge between 5-10% of rent revenues for their services, which include lease administration. Since there are tenants and city regulation, most repair needs to be handle by professional. 

More risks. Commercial tenant typically will have longer lease, however there is a risk might be tenant will go out of the business. Depending on the economic cycle, replacing a commercial tenant might take longer.

Properties intended for commercial use tends to have heavier foot traffic. With pedestrians, people can hurt themselves by running to each other or slip on ice during the winter. Not to mention vandals can spray paint the sides of the building. Incidents like these can occur anywhere, but chances of experiencing something like these events go up when investing in commercial properties.

If you're risk adverse, you may want to look more closely at putting your money in residential properties.

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