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Why Do Investors Use Hard Money to Finance Mixed-Use Commercial Buildings?

Why Do Investors Use Hard Money to Finance Mixed-Use Commercial Buildings?

Investors have the option of using hard money to finance mixed-use commercial buildings. Hard money loans are a useful tool for borrowers to close quickly and purchase or renovate unstabilized properties that don't qualify for bank financing. Hard money loans offer real estate investors and developers creative financing that most bank loans simply can't provide. 

This article explains the reasons why some of FCTD’s investor clients use hard money loans to purchase and renovate mixed-use commercial properties. We’ll also cover scenarios when investors refinanced out of a bank loan and into a hard money bridge loan.  

What is a Mixed-Use Building?

First off, let’s discuss the definition of a mixed-use building.  

A mixed-use building is a real estate property that combines both residential and commercial components within the same structure. These buildings are gaining popularity in urban areas as a way to maximize limited space. The concept behind mixed-use developments is rooted in the idea of creating vibrant, walkable communities for people to live, work and play in close proximity.

In such structures, apartments or condominiums exist alongside office spaces, retail establishments, restaurants, and even entertainment venues. Mixed-use buildings offer numerous advantages for investors and tenants alike.

From an investment standpoint, these properties often provide a diversified and stable income stream as they cater to a wide range of needs. Moreover, mixed-use developments tend to be more resilient during economic downturns, since the revenue generated from different sources mitigates risk.

Why Investors Use Hard Money Loans for Mixed-Use Properties

Most real estate investors prefer bank financing to acquire or renovate a mixed-use building. Bank loans have lower upfront fees and interest rates, along with more favorable terms than hard money loans. However, bank loans aren’t always an option for real estate developers and investors, as I’ll discuss below. In these cases, developers and investors turn to hard money and private money lending to acquire or make major renovations to a mixed-use property.

Let’s dive into the details.

Investor Purchased Mixed-Use Building With High Vacancy Rate

FCTD had an investor client in a 1031 exchange buying a mixed-use building with high vacancy rates in the residential portion of the building. The buyer applied for financing from a local bank, which had initially agreed to make an exception for the vacancies. However, the loan committee ultimately denied the loan 10 days prior to the close of escrow.

Since this was a tax-exempt 1031 exchange, the buyer needed to close on or before the deadline. FCTD secured a 12-month bridge loan for the buyer through a family office with large real estate and private lending investments in and around the part of Los Angeles where the subject mixed-use property was located. The lender met the buyer, real estate agent, and listing agent at the property the next day. The loan docs were ready soon after, allowing the investor to execute their 1031 with plenty of time to spare.  

Investor Acquired a Partially Finished Mixed-Use Building

FCTD had an investor purchase a building mid-construction from a builder who had abandoned the project, and just wanted to break even. This turned out to be a great project, with FCTD securing a purchase money loan with approximately $1 million in construction completion funds for our borrower to finish the project.

Retail Cannabis Tenant Causes CMBS Loan to Accelerate

I see a few institutional loans each year accelerated due to a cannabis tenant, when the loan covenant prohibits cannabis use on the property. FCTD had a situation a few years back where the owner of a mixed-use building in Los Angeles had an institutional Commercial Mortgage-Backed Security (CMBS) loan on their property. The building owner knew that they weren’t permitted to have a cannabis tenant, but didn’t expect the lender to ever discover the prohibited tenant if they kept making on-time payments.

Somehow, the CMBS lender discovered the first floor marijuana retail dispensary and called the loan due in full. The building owner needed to pay off the loan within 30 days so they came to FCTD for a 12-month private bridge loan. FCTD placed the $3 million loan with a real estate investment firm whose partners have a private lending division for situations like this. 

Upon closing on the private money bridge loan, the building owner worked with a California state-chartered bank on a 7-year commercial mortgage against the building. Some state-chartered banks and state-chartered credit unions will lend against properties with a tenant in the cannabis business. 


Investors can use hard money to finance mixed-use commercial buildings for a variety of reasons. Sometimes, the property has too many vacancies to qualify for bank or institutional financing. Other times, like for our developer client who purchased a project mid-construction, bank financing may be too time-consuming, cumbersome and frustrating. A hard money lender can move much faster than a bank, empowering an investor to start working on their project a month or two earlier than with a bank loan. Or, a building owner is discovered with a cannabis tenant and has their CMBS loan accelerated. A quick pay off is possible with a hard money loan.

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