We all know that financing drives commercial real estate. There is a lot of cash in the market but investors want to be leveraged so they can diversify their holdings. Leverage also allows the investors to potentially magnify the returns on their investments. Cash is King but financing drives commercial real estate. It always amazes me when sellers of commercial buildings want to negotiate financing contingency periods. One of my investor groups uses a lot of debt through life companies. This is non-recourse debt with great rates and long terms. It also takes a while to get underwritten and approved. My client looks for 45 days for financing. We ask for a separate due diligence period for ourselves. I must admit that every deal that i get under contract, the other side is trying to reduce the third-party financing period. On one deal, we had already agreed to pay additional earnest money for any additional extensions. It makes me wonder if there is some school of thought that is telling people who if you squeeze the buyer to the point where he doesn’t have any time to get his financing approved, it will help get the deal done. We all know that it doesn’t work that way. Fortunately I like talking with the other brokers and after we both agree that financing rarely gets approved in less 45 days, we always end up with our requested 45 days. I look forward to the time when i dont have to negotiate it and the other side realizes that banks never move quickly. We must write contracts to the lowest common denominator and often times that is third-party financing. Well, that’s my personal insight for this week. I hope that everyone has a Happy Easter.
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