After years in the real estate business, Charles Flanagan thought he knew all the ins and outs of the borrowing game. The upstate New York-based investor had experience with traditional lenders as well as using bridge loans for building up his portfolio of shopping centers and other projects.
When it comes to commercial real estate loans, higher risk, means a higher rate. It’s one of those ‘unwritten laws’ of business. One that’s followed because even experienced, professional developers can have trouble getting new development projects started. Which is why traditional lenders like banks tend to run away from land deals. And when you add in questions like will the borrower have enough money for the next phase of development, and whether essential infrastructure outside of the developers control will arrive as promised, it’s no wonder the risk/rate equation often comes out high.