Gaining Investors for Commercial Real Estate Ventures
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Commercial real estate ventures often call for pulling in investors to back construction and enable developers to gain the financing they need to move ahead with plans to build. This prospect can pave the way to move ahead with plans, but it can also be fraught with potential problems for companies and investors who do not proceed with caution.
Why Are Investors Needed?
Commercial real estate projects are typically backed by investors of one kind or another. The need to have investors, whether commercial banks or private lenders, is financially driven. While some developers can and do fund ventures exclusively with their own capital, many do not have all the necessary funding to bring a larger project to fruition. In some cases, developers need to combine the funds from private investors with commercial lending proceeds to fund a project fully.
Companies seeking to fund commercial real estate ventures may explore a number of options to help them gain investors. Some potential prospects include:
- Financial institutions–Banks that provide commercial and/or construction loans often invest in commercial real estate ventures. This option calls for having a sound business plan in place and may require other investors, including the developer, to fund a part of the project. Loan applications and other forms and contracts will apply.
- Private investors–Under this option, private citizens invest in a commercial real estate venture with the hope of earning a return on their money and profits. Companies may seek individuals they know to invest in such ventures, or they may advertise the potential investment opportunity to a larger audience.
- Public stock options–This calls for bringing a company into the public trading arena and will involve a number of legal hurdles even before the company reaches this point.
Protecting the Proceedings
Under any of the options to gain funding, commercial real estate developers will need to protect their companies and their investors. This calls for having contracts drawn up and agreements created and signed and for having loss mitigation plans to put into action if the ventures don’t prove successful. In order to gain private investors, companies will likely need to have:
- a sound business plan,
- preliminary concepts worked out for the project and
- a financial prospectus for the proposed project
Hiring Legal Counsel
No matter which funding option or combination of options a commercial developer chooses, having a commercial real estate lawyer to work with can prove essential. A skilled lawyer will be able to help companies review lending options, draw up investment contracts and more. Careful legal oversight can prove critical to the company’s success with a project and its ability to gain investors.