Question

Sarah Jayne is a loan officer at AmeriBank and serves as the relationship manager for Alpha Properties, LLC. Her contact at Alpha is Ben Jones, owner and CEO. In their most recent meeting, Ben reiterated that Alpha's investment philosophy is that real estate values are maximized when a project has demonstrated success as measured by consistent, ample cash flow. Based on that investment strategy, Alpha Properties likes to arrange financing for its newly-constructed projects that allows for income stabilization before considering selling the property. Based on Ben's explanation, which type of commercial real estate loan would Sarah recommend as the best fit for Alpha Properties' needs? Permanent loan Revolving loan Construction loan Interim (mini-perm) loan

Answer 1

Based on Alpha`s investment philosophy it can be concluded that Alpha`s real estate values are more preferably into cash rich projects. Due to healthy cash flow, it would be always advisable to take benefit of minimizing the interest cost. Revolving loan gives the options to pay the interest only on the sum utilized unlike other fixed installment loans. Due to ample cash flow, the working capital need would be at minimal. And for minimum working capital requirement need, revolving loan is best recommended.