The demand for alternative financing for real estate development has grown, according to the data of alternative financing and financial consulting provider “Capitalia”.
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In 2022, the company issued 1.8 million euros for construction projects throughout Latvia, which is 393% more than in 2021.
According to its observations, the trend continues this year as well, when in the first two months, the implementation of three projects has already started with the help of alternative financing. Most often, alternative financing is attracted to the development of plots of apartment buildings and private houses.
Until now, “Capitalia” has specialized in financing relatively small projects, where the required credit is up to 500 thousand. euro against real estate pledge.
“Developing real estate includes a wide range of projects, starting with the division of a small piece of land into construction plots and ending with the construction of large apartment building complexes. Large-scale projects often also involve higher construction, inflation and financing risks, therefore “Capitalia” grows its scale gradually. Capital intensity and due to the long deadlines for the implementation of projects, financing from banks or investment funds will be more suitable for financing large-scale projects. Bank financing will also be more suitable for financing rental houses in the long term due to a lower interest rate, but a “Capitalia” loan can be useful in the construction phase until the work is completed. It should be mentioned that the bank, most likely , will offer better long-term loan conditions if the object has already been completed and put into operation, therefore alternative financing is often initially used for the development of rental buildings, after which it is refinanced to the bank,” says Artūrs Soročenkovs, head of the Financing Department of “Capitalia”.
Interest from regional developers in Liepaja, Valmiera district, Salaspils and other cities is increasing. For example, since March 2022, “Capitalia” has financed “Lion estate” projects, which operate on the Liepāja side, in several rounds. On the other hand, in April, it issued a loan for the implementation of the project “Smailes” in Valmiera region, where the construction works have already been completed and the realization of apartments is currently progressing successfully. “Regional projects are often smaller in size, which accordingly includes less risk both in the construction process and in attracting financing. The proportion of new projects in the region is much lower than in the Riga area, as a result of which the demand for apartments in newly built or renovated houses is just as high, which opens up great opportunities for growth opportunities also for smaller developers in the region,” notes Sorochenkov.
In total, “Capitalia” has financed working capital and capital investments of more than 5,000 companies, investing more than 90 million euros in their development. In addition to loans and venture capital, it also offers companies professional advice on business sales and fundraising.