Offshore CRE Lending: What You Need to Know

For those who would venture outside the friendly confines of the U.S. to lend for commercial real estate, there are several key factors to consider. To begin with, it is absolutely critical for any lender to engage local legal representation to make sure all necessary laws within the particular jurisdiction are adhered to. In some locations, specific regulations may be easy to resolve; others may require applying for permits or getting licensed just to make a loan in that particular location, for example.

What’s the value of the property? It is equally important to hire an independent, reliable appraiser, one who knows how to judge the value of the property in its present condition or, in the event of a construction loan, what it will be worth upon completion. That appraiser must have their finger on the pulse of what’s going on in the immediate area because, while a beachfront property may look spectacular in pictures, the comps immediately around it may indicate the property isn’t worth nearly as much because of inaccessibility, or issues with the buildings on that particular property. The appraiser must also be able to physically inspect the property for issues such as slope and topography that may impact future construction. A property might look spectacular, but such issues can make it impossible to sell.

And it is important to make sure that, for a construction loan, the borrower is building in accordance with all local laws and regulations. Are all necessary permits in place? Indeed, it’s very important to have someone “on the ground” checking the status, checking for violations, and making sure work is progressing in accordance with the original plans, specs, and budgets provided by the borrower.

The bottom line is that many lenders are hesitant to make construction loans outside of the U.S. unless local counsel provides extreme comfort levels, and an on-the-ground, independent construction engineer is there to monitor the process. It is very critical to monitor the process and make sure the money you’re advancing is being spent directly on the project, and that there are no violations, fines, hazards or other issues that could prevent the eventual sale or diminish the value of the property.