Financing Commercial Real Estate Development Projects

Understanding the Three Main Financing Routes

When it comes to real estate development financing, there’s no one-size-fits-all approach. Most successful projects draw from a blend of the three primary financing categories, depending on project scope, location, risk, and investor goals.

Debt Financing

Debt financing allows developers to borrow capital from banks or private lenders through tools like construction loans, bridge loans, or traditional mortgages. These loans typically require interest payments and collateral but enable the developer to maintain full ownership of the project while securing the funds needed for construction and development.

Equity Financing

Equity financing involves raising money by offering partial ownership of the project to private equity funds, joint venture partners, real estate investment trusts (REITs), or private investors. This method shares both the risk and reward of the development, often bringing in experienced partners while reducing the developer’s upfront financial burden.

Public and Private Incentives

Incentive-based financing includes tools like tax increment financing (TIFs), tax abatements, Opportunity Zones, and Public Private Partnerships. These programs reduce development costs or defer taxes, making challenging or underutilized sites more financially viable. Properly leveraging incentives can significantly enhance a project’s visibility, return on investment and long-term economic impact.

Understanding each of these avenues and how they can be combined is key to building a capital stack that aligns with your development goals and risk profile.

Debt Financing Explained

Debt financing is one of the most widely used funding sources in commercial real estate development. Whether sourced from a local bank or an institutional lender, debt is structured with specific repayment terms and interest rates and often requires collateral.

The Pros and Cons

The primary benefit of debt financing is that it allows developers to retain full ownership of their project. However, debt must be repaid regardless of project performance, which increases financial pressure. Additionally, high leverage can be risky if market conditions change or the project is delayed.

Loan Structure, Interest Terms, and Collateral Considerations

Construction loans typically offer short-term financing with interest-only payments during the build phase, followed by a balloon payment. Bridge loans provide temporary capital until longer-term financing is secured. Collateral is often the property itself, and lenders require detailed appraisals, feasibility studies, and borrower guarantees. Hokanson Companies advises clients on negotiating loan terms that support project success and long-term stability.

When It Makes Sense

Debt financing is ideal for low-risk or well-located projects with stable tenants or pre-leasing activity. Projects with clear exit strategies, low loan-to-value ratios, or strong sponsor backing are often well-positioned to secure favorable debt.

Equity Financing in Commercial Development

Equity financing brings in capital partners who share in both the risk and reward of a commercial real estate development. While this reduces the developer’s financial burden, it also means sharing ownership and decision-making authority.

What Equity Partners Expect

Equity investors expect a clear return on investment—often structured as a preferred return plus profit participation. They look for sound underwriting, a strong development team, and transparent reporting. Professionals can help clients present compelling opportunities that align with investor expectations and build long-term relationships.

Risks and Control Tradeoffs

While equity doesn’t require repayment like debt, it does dilute ownership. Equity partners often seek input on major decisions and may impose operational restrictions. Developers must be prepared for a more collaborative, and sometimes slower, decision-making process.

When It’s the Better Option

Equity financing is well-suited for higher-risk developments, large-scale projects, or when flexibility is needed in capital planning and deployment. It also works well in early-stage developments or when a developer lacks sufficient collateral for a large loan.

Utilize Hokanson Companies’ expert feasibility studies to strengthen your commercial development project financing strategy with data-driven confidence.

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Government and Economic Development Incentives

Incentives can reduce overall project costs or improve cash flow timing, especially in targeted areas or revitalization zones. These programs are particularly valuable in real estate development financing, where margins are tight and public-private cooperation can drive success.

Types of Incentives Available in Indiana

Indiana offers a range of tools, including Tax Increment Financing (TIF), tax abatements for new construction or redevelopment, Opportunity Zone incentives, and infrastructure grants. These programs are often managed at the municipal or regional level and aim to stimulate job creation, economic growth, or urban renewal.

How Experts Help Navigate These Programs

Navigating public incentives can be challenging. Each program has its own eligibility criteria, application process, and post-award compliance requirements. Hokanson Companies leverages deep experience and government relationships to help clients access and structure these benefits effectively.

Timing and Paperwork Requirements

Securing incentives requires early application, often before construction begins. Developers must submit feasibility studies, impact analyses, and long-term projections. Delays in paperwork or missed deadlines can result in forfeited benefits, making expert guidance critical during early planning stages.

Building a Capital Stack That Works

A well-balanced capital stack integrates multiple funding sources in a way that reduces risk, maximizes flexibility, and meets lender and investor expectations. Hokanson Companies works closely with companies to tailor financing strategies to each project’s specific needs.

Blended Approaches

Most commercial real estate development projects benefit from combining debt, equity, and incentive financing. For example, a developer might secure a construction loan for 60% of the project cost, raise 30% from equity partners, and use TIF proceeds to cover infrastructure upgrades. Hokanson Companies is an expert that can help structure these arrangements to keep projects financially viable and investor-ready.

Strategic Sequencing and Relationship Management

The order in which financing is secured can significantly impact project momentum and credibility. Debt providers want to see equity in place, while equity partners want assurance of public incentives. Coordinating these relationships and timelines is where Hokanson Companies adds immense value, acting as a strategic liaison and guide.

Importance of Feasibility Studies in Financing Decisions

Lenders, equity partners, and public agencies all want data to support investment. Feasibility studies, pro forma models, and market analysis are essential to validate assumptions and secure capital. It’s important to conduct the proper research and documentation needed to make a compelling financial case.

Ensure Straightforward Financing For Your Commercial Development Project With Hokanson

Securing financing for a commercial real estate development project requires more than capital, it takes strategy, coordination, and a deep understanding of funding options. Whether you’re pursuing loans, raising equity, or applying for incentives, Hokanson Companies can help you build a capital stack that aligns with your project vision and long-term goals.

With decades of experience in real estate development financing, we provide the insight, relationships, and resources to turn complex funding challenges into clear, actionable solutions. Contact Hokanson Companies today to start planning your next development with financial confidence.