How to Finance Commercial Real Estate

Financing commercial real estate in Macomb County involves picking the right structure for the specific deal rather than defaulting to whatever the first lender offers. The capital stack on a commercial transaction can include senior debt, mezzanine debt, preferred equity, common equity, and seller financing in various combinations, and the right mix affects returns materially across the hold period.

Senior debt forms the foundation of most capital stacks. For typical investment property across Macomb County, conventional bank debt covers 65 to 75 percent of purchase price at competitive rates. Local Michigan community banks and credit unions compete actively for qualified commercial deals. Institutions with strong commercial lending presence across the region include national lenders, regional banks, and community banks that know the specific submarkets. Shopping two or three lenders typically saves 25 to 75 basis points on the rate, which compounds into real dollars over a five year term.

SBA 504 financing serves owner users occupying more than 51 percent of the building. The 50/40/10 structure means a conventional first mortgage covers 50 percent, a certified development company covers 40 percent at a fixed rate for up to 25 years, and the buyer brings just 10 percent down. For small businesses buying their operating location across Macomb County, SBA 504 preserves working capital that conventional 25 to 30 percent down would otherwise consume. The fixed rate on the CDC portion locks in long term financing in a way conventional debt usually does not match.

Bridge debt funds deals that conventional permanent debt cannot finance yet. A building with significant vacancy or deferred maintenance often needs bridge financing during lease up and capital work, then refinances into permanent debt once stabilized. Rates run 2 to 5 points above conventional, and terms are short, typically 12 to 36 months. Bridge debt works for experienced buyers with clear stabilization plans and punishes buyers who underestimate timeline.

Mezzanine debt and preferred equity fill the gap between senior debt and buyer equity on larger transactions. Rates run in the 10 to 15 percent range, but the capital lets sponsors do deals that would otherwise require too much of their own equity. On a $8 million Macomb County industrial acquisition, mezzanine debt covering 10 percent of capital cost cuts required equity from 25 percent to 15 percent, which can mean the difference between executing the deal and passing.

Seller financing shows up more often across the region than buyers expect. A seller with significant equity and tax reasons to spread the gain over time can carry a note, often behind a conventional first mortgage. The buyer gets in with less cash. The seller earns interest income and gets installment sale tax treatment on any gain. Seller financing appears most often on older industrial buildings where owners have held for decades and want reliable income rather than a lump sum to reinvest.

Construction financing for ground up projects draws in stages as work progresses, converting to permanent debt at completion. Typical structures require 25 to 35 percent borrower equity measured against total project cost. Land value can sometimes count as equity contribution. Michigan construction lending has been selective since 2022, with lenders prioritizing experienced sponsors and clear demand support.

Capital structure decisions affect more than just rate. Recourse versus non recourse, prepayment flexibility, covenant requirements, reserve mandates, and personal guarantee terms all factor into total cost of capital. A loan with the lowest headline rate and the harshest prepayment penalty often costs more across a five year hold than a slightly higher rate loan with flexible exit terms.

TDG Commercial, known as top commercial real estate agent in Macomb County, works with borrowers across every financing category to match structure to situation. The right financing choice materially affects long term returns, and taking time to optimize typically saves real money.