Broadmark’s CRE Financing Process: Maximize ROI on Your Investment
To understand the commercial real estate transaction process, it can help to think of it as a multistep journey toward realizing a return on your investment.
Typically, the CRE transaction process at Broadmark Realty Capital involves five steps:
In this initial stage, a real estate investor submits a term-sheet request. A Broadmark market expert then reviews the opportunity with the investor. Factors that go into identifying attractive targets in the more than $20 trillion CRE market in the U.S. include location and price.
- Letter of intent.
Once the discovery phase wraps up, the Broadmark team combs through the opportunity in greater detail. After that, Broadmark issues a non-binding letter of intent that outlines goals and expectations for the proposed investment.
- Due diligence.
If both parties sign the non-binding letter of intent, Broadmark receives a cash deposit to cover due diligence and other costs, such as appraisals.
Next, final recommendations are forwarded to Broadmark’s investment committee for review and approval.
The fifth and final step is closing and funding the investment according to document, title, escrow, insurance and legal requirements.
While these five steps are common in CRE investment transactions, there are nuances to how each investor approaches the process. Broadmark, one of the dozens of mortgage REITs doing business in the U.S., works closely with real estate investors to ensure they have the financing that’s appropriate for a particular project.
Mortgage REITs, known as mREITs, provide financing for income-generating real estate by originating or purchasing mortgages and mortgage-backed securities. These REITs then earn income from the interest on these investments.
By contrast, equity REITs own and operate properties that produce revenue, mostly through rental income.
Broadmark differs from its mREIT counterparts in one key way. We are a balance-sheet lender that finances deals with 100% equity, which is unique in the mREIT space. Broadmark completes approvals for funding loans through just one credit committee in our Seattle office. This streamlines the process to speed up the pace of financing, avoid project slowdowns and help investors maximize their return on investment (ROI).
Although the word “mortgage” may suggest that we focus solely on housing, our investment strategy encompasses multifamily properties, senior housing and student housing, as well as land, office buildings, industrial properties, retail properties, hotels and self-storage facilities. We specialize in four lending products: acquisition, construction, bridge and land loans.
Investing in CRE During Inflation
So, which of Broadmark’s investment sectors might be ripe for an attractive ROI as the U.S. contends with inflation?
Graf explains that investors must prepare for a short-term or long-term economic slump, regardless of whether the U.S. is headed toward a recession.
“While there is much speculation in the marketplace about a potential downturn, the truth is that no one truly knows the answer,” Graf says. “However, it does not appear that there will be a quick recovery for the housing market, and investors must therefore be planning ahead.”
Ensure a Smooth CRE Transaction Process
As part of a forward-looking plan, an investor can do several things to make the CRE transaction process as smooth as possible. These include:
- Examining your investment goals.
What do you hope to achieve with the property? Are you buying a commercial real estate asset to improve and flip it, thereby employing a value-add strategy? Or do you want to purchase a property to hold onto it and attract a long-term tenant?
- Choosing wisely.
To help ensure your ROI will be solid, look for assets that will perform well over the long haul in the market you’re considering. Is the area growing and in need of more multifamily properties? Is there a shortage of self-storage space in a trade area within that market? Is an available tract of land poised for redevelopment?
- Going over past performance.
If you’re buying an existing property, make sure you’re clear about its rental history. Has the occupancy rate been high (meaning there might be little required on your end to boost revenue)? What would you need to do to turn around a low occupancy rate?
Another way to simplify the investment process is to stay on top of market trends, especially as they relate to asset classes that were battered during the pandemic. This includes the office sector, which has been highly scrutinized amid shifts in work-from-home behavior.
Survey results released in November 2022 by professional services firm Ernst & Young offer insights into the future of the office sector:
- Over 70% of employees are working from home at least two to three days a week.
- 40% of employers have either started using a four-day workweek or are in the process of doing so.
- Nearly two-thirds (64%) of employers are leasing or looking at leasing suburban office space in response to the “deurbanization” of the workforce.
“The physical office is still a crucial component to a company’s ability to thrive now and in the future,” Ernst & Young concludes, “and employers believe the connection employees experience within the physical office is worth the investment.”
From our perspective, the E&Y survey results indicate office space won’t vanish but, instead, will be reshaped or be relocated. In other words, investors should not dismiss the office sector as an asset class.
Whatever type of property is on your radar, be sure to approach the CRE investment process with a strategic mindset, an openness to various asset classes and an eye toward current and future market conditions. Doing so can help you realize a healthy ROI on your next CRE acquisition.
Are you looking for a trusted partner in real estate? Look no further than Broadmark Realty Capital, whose investment approach sets it apart from other mortgage REITs. Contact us today to learn how we can help maximize the ROI on your commercial real estate investments.
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