Top 5 Benefits of Private Lending for First-Time Property Investors
April 14, 2025The Impact of Bank of Canada Rate Cuts on Private Mortgage Solutions
April 28, 2025
Introduction
Alberta, with its booming industries, low corporate taxes, and strategic location, remains an attractive destination for commercial real estate investment. However, acquiring financing for large-scale commercial projects isn’t always straightforward—particularly for business owners and developers with unique needs or unconventional proposals. Traditional banks can be conservative with lending, especially for projects considered high-risk or non-conforming.
This is where private mortgages step in as a valuable alternative. Private mortgage lenders—typically individuals or companies outside the traditional banking system—offer more flexible and personalized lending solutions. In this article, we’ll explore how private mortgages can be effectively leveraged for commercial real estate ventures in Alberta, the benefits and risks involved, and when it’s the right time to consider private lending.
Understanding Private Mortgages
What is a Private Mortgage?
A private mortgage is a loan provided by a private individual, mortgage investment corporation (MIC), or private equity firm rather than a traditional financial institution. These mortgages are often used by borrowers who:
- Do not qualify for conventional financing.
- Need quicker access to capital.
- Are undertaking unconventional or high-risk commercial projects.
Unlike banks, private lenders focus more on the value of the property and potential returns than the borrower’s credit score or financial history.
Types of Commercial Properties Financed by Private Lenders
Private lenders are commonly involved in financing:
- Retail plazas
- Office buildings
- Industrial warehouses
- Mixed-use developments
- Multi-family rental units
- Land acquisitions for future development
The Commercial Real Estate Landscape in Alberta
Why Alberta?
Alberta boasts several economic advantages:
- No provincial sales tax
- Competitive corporate income tax rate
- A young, skilled labor force
- Abundant natural resources
- Growing urban centres like Calgary and Edmonton
Despite economic cycles and the oil industry’s ups and downs, Alberta’s commercial real estate market remains resilient, offering promising ROI to investors and developers.
Challenges in Securing Bank Loans
Traditional lenders in Alberta often require:
- Minimum credit scores
- High down payments
- Comprehensive income documentation
- Long approval timelines
Projects in the early stages, those with complex zoning issues, or developments in rural areas are often turned away. This makes private lending a compelling option.
Advantages of Private Mortgages for Commercial Projects
1. Fast Access to Capital
Time-sensitive opportunities like land auctions or distressed asset purchases often require funding within days. Private lenders can close deals in a fraction of the time compared to banks.
2. Flexible Terms
Private mortgage terms can be customized, including:
- Interest-only payments
- Balloon payments
- Short-term loans (usually 6 months to 3 years) This allows developers to tailor financing to match project timelines.
3. Fewer Qualification Barriers
Credit issues, limited cash flow, or complex ownership structures won’t necessarily disqualify an applicant. Instead, the property’s potential and exit strategy are prioritized.
4. Creative Deal Structures
Private lenders can offer:
- Second mortgages
- Joint venture funding
- Bridge loans
- Mezzanine financing These can be pivotal for leveraging equity, filling funding gaps, or managing cash flow.
Potential Risks and Considerations
Higher Interest Rates and Fees
Private mortgage rates are significantly higher than traditional ones—often ranging from 8% to 15%, with additional lender and broker fees. This makes them more suitable for short-term use.
Short-Term Nature
Most private loans are short-term (6 to 36 months), designed to bridge the gap until traditional financing becomes available. If the exit strategy fails, borrowers may face refinancing challenges or risk default.
Due Diligence is Crucial
Borrowers must:
- Understand all terms and conditions.
- Review lender credibility and previous deals.
- Consult legal and financial experts before signing.
When to Consider a Private Mortgage in Alberta
1. Land Development Projects
Developers buying raw land for rezoning or servicing often face challenges getting traditional loans. Private mortgages can finance land acquisition and early-phase work until pre-sales or rezoning approval is complete.
2. Redevelopment of Older Buildings
Revitalizing vacant warehouses or outdated office buildings involves risks that banks may shy away from. Private lenders are more open to funding these transformations.
3. Bridge Financing for Acquisitions
When a lucrative property becomes available, speed is critical. Private lenders can offer quick financing while long-term financing is being arranged.
4. Refinance and Equity Take-Outs
Property owners can use private mortgages to refinance or access equity for additional investments, renovations, or operational costs.
Case Study: A Retail Plaza in Calgary
Scenario: A local entrepreneur identifies an underutilized retail property in Calgary listed for $1.5 million. Banks decline the loan due to:
- No prior commercial real estate experience.
- Limited down payment.
- Unverified tenant lease agreements.
Solution: A private lender offers a 1-year interest-only loan of $1.2 million at 10% interest with a 3% lender fee. The borrower uses personal funds and family backing for the remaining $300,000.
Outcome: The entrepreneur renovates the plaza, secures signed tenants, and refinances with a traditional lender at a lower rate after 10 months. The property is reappraised at $2.1 million—significantly increasing equity.
Tips for Working with Private Lenders
- Be Transparent: Share your full vision, including risks and contingencies.
- Prepare an Exit Strategy: Lenders want to know how you’ll repay the loan (sale, refinance, cash flow, etc.).
- Show Collateral Value: Present a strong case for the property’s future value.
- Build Relationships: Long-term collaboration with a trusted lender can unlock future opportunities.
- Use a Mortgage Broker: Experienced commercial brokers can help negotiate better terms and connect you with the right lenders.
Conclusion
Private mortgages offer a strategic financing alternative for commercial real estate projects in Alberta. While they come with higher costs, the flexibility and speed they provide can make or break a deal—especially for entrepreneurs and developers with vision but limited access to conventional loans.
Whether you’re acquiring land, redeveloping a property, or navigating complex zoning and permitting processes, private lending could be the key to unlocking your next big investment in Alberta’s thriving commercial real estate market.
Bibliography
- Canadian Mortgage and Housing Corporation. “Commercial Real Estate Trends in Canada.” CMHC, 2024.
- Real Estate Investment Network (REIN). “Alberta Market Trends and Investment Outlook 2024.”
- Alberta Real Estate Association. “Commercial Financing Guidelines.”
- Mortgage Professionals Canada. “Private Lending in Canada: Understanding the Landscape.” 2023.
- Investopedia. “Private Mortgage Definition and Use Cases.”
- Alberta Government. “Doing Business in Alberta.” Economic Development Reports, 2024.
- The Globe and Mail. “Why Private Mortgages Are Growing in Popularity Among Canadian Investors.” June 2023.
- Canadian Real Estate Wealth. “Bridge Loans and Private Mortgages: What You Need to Know.”
