Key Takeaways
- Start with the demand a property serves and whether that need is likely to last, rather than its current popularity.
- Consider the property’s cash flow, the borrower’s experience, and financing that fits the project.
- A smaller or less conventional project deserves a discussion of its fundamentals; loan size alone does not describe its value.
How to Evaluate a Commercial Real Estate Opportunity
If you are considering a commercial property purchase or development, start with a question that goes beyond which property type is attracting attention: who needs this property, and will that need last? Local demand, operating fundamentals, and a suitable financing structure provide a more useful starting point than market popularity alone.
Eric Wu, Executive Vice President and Chief Lending Officer at New Omni Bank, draws on more than 30 years of commercial real estate experience. His approach is to understand what a property serves, how it operates, and whether the proposed plan has a sound foundation. For buyers and developers, that means looking closely at the specific project before deciding whether to move forward.
“Who needs this property, and will that need last?”
What Demand Will the Property Serve
Begin with the people or businesses expected to use the property. Consider how the proposed use fits the surrounding community and whether local population, industry, and everyday needs support it over time.
Eric describes a bridge loan his team provided for the purchase of a seven-unit retail property in Eagle Rock, Los Angeles. The buyer saw an opportunity to bring in small businesses serving local residents. What stood out to Eric was the property’s potential role in the neighborhood, rather than the size of the loan.
For your own project, be ready to explain who the intended tenants or users are, why the location fits their needs, and what supports your view of demand.
How Much Weight Should You Give Market Trends
A property type can attract investor interest without being the right fit for every location or business plan. Eric’s advice is to look beyond what is popular and consider whether people will still need that property five or ten years from now.
Timing also matters. A project can arrive before demand is established, or after an opportunity has changed. Rather than treating popularity as proof of long-term value, use it as a reason to examine the local need more closely.
Compare the project’s proposed use with the demand you can identify. The question is whether this particular property has a credible purpose over time.
What Will a Lender Want to Understand
When you discuss financing, expect the conversation to cover how the property generates income, whether its cash flow supports continued operations, and the experience you bring to the plan. The surrounding community and the proposed financing structure also help a lender understand the project.
Community retail, mixed-use developments, and long-term care facilities can have different operating models. A clear explanation of how your property will function is more useful than assuming it can be assessed in the same way as another property type.
Eric also describes his involvement in a Los Angeles affordable multifamily development with more than 40 units. Its development model required additional time to understand. The example illustrates why a project’s purpose and structure need to be discussed together, particularly when it does not fit a conventional model.
Does the Financing Fit the Project
A property acquisition, a development, and a refinance can involve different funding needs. Explain what the financing will support, the stage the project has reached, and the intended timeline so the lender can discuss a structure suited to the circumstances.
For the Eagle Rock acquisition, the team used a bridge loan. In another case, it completed an approximately $490,000 refinance of a retail property in Fontana. These examples involved different purposes and loan sizes; neither provides a standard financing formula for other projects.
Ask which financing options may fit your plan, what information is needed for review, and which conditions would need to be met. Availability, terms, and approval depend on the individual project and underwriting review.
“A loan’s size does not, by itself, determine a project’s value.”
How Should You Prepare for the First Conversation
You do not need to lead with the largest possible loan request. Start with a clear account of the project and its fundamentals.
Before meeting with a lender, prepare to discuss:
- What the property is used for and whom it will serve.
- What supports demand in the surrounding area.
- How the property generates, or is expected to generate, income.
- Your relevant operating or development experience.
- The purpose of the financing and your proposed timeline.
These topics give the lender a starting point for understanding the plan and identifying the information needed for further review. A smaller or unusual project may require a closer look at its structure, but its fundamentals remain central to the discussion.
To discuss commercial real estate or construction financing for your project, send us a message or visit one of our branches.
This article is adapted from content originally published in collaboration with Chinese L.A. Daily News.
The information provided in this blog is for general informational purposes only and should not be considered legal, financial, or investment advice. All content is subject to change without notice. All loans and lines of credit are subject to credit approval. Please consult with a qualified professional or contact New Omni Bank directly for personalized guidance or the latest product information.
