South Dakota is a state with a diverse economy, driven by agriculture, manufacturing, and tourism. The state has a low unemployment rate of 2.9%, according to the Bureau of Labor Statistics, which is well below the national average. The state's population has been growing steadily, with a current estimate of 884,659 residents, according to the U.S. Census Bureau. This growth has led to increased demand for commercial real estate, particularly in the multifamily and hospitality sectors.

Financing options for commercial property loans in South Dakota vary depending on the type of property. Lenders typically require a down payment of 20-30% for commercial real estate loans, and interest rates can range from 4-7%. The Small Business Administration (SBA) offers loan programs for small businesses looking to purchase or refinance commercial real estate, which can provide more favorable terms and longer repayment periods.

Economy in Review

The South Dakota economy has been growing steadily in recent years, with a gross domestic product (GDP) of $57.9 billion in 2019, according to the Bureau of Economic Analysis. The state's largest industries include agriculture, manufacturing, healthcare, and tourism. The state's low tax burden and business-friendly environment have made it an attractive location for businesses looking to expand or relocate.

The COVID-19 pandemic has had a significant impact on the South Dakota economy, particularly in the tourism and hospitality sectors. However, the state has fared better than many others due to its low population density and lack of major urban centers. The state's unemployment rate has remained relatively low compared to the national average.

Multifamily Market

The multifamily market in South Dakota has been strong in recent years, driven by population growth and a shortage of affordable housing. According to the National Multifamily Housing Council, the state has a rental vacancy rate of just 2.7%, well below the national average. Financing options for multifamily properties include traditional commercial real estate loans, SBA loans, and HUD-insured loans.

Office Market

The office market in South Dakota is relatively small, with most of the demand coming from government and healthcare tenants. The state's largest office markets are in Sioux Falls and Rapid City. Financing options for office properties include traditional commercial real estate loans and SBA loans.

Industrial Market

The industrial market in South Dakota is driven by manufacturing and distribution, particularly in the eastern part of the state. The state has a low cost of doing business and a central location, making it an attractive location for companies looking to expand their operations. Financing options for industrial properties include traditional commercial real estate loans and SBA loans.

Retail Market

The retail market in South Dakota has been impacted by the rise of e-commerce, but the state still has a strong retail sector, particularly in tourist areas. The state's largest retail markets are in Sioux Falls and Rapid City. Financing options for retail properties include traditional commercial real estate loans and SBA loans.

Self-Storage Market

The self-storage market in South Dakota has been growing in recent years, driven by population growth and increased demand for storage space. The state has a low supply of self-storage units compared to other states, which has led to higher rental rates. Financing options for self-storage properties include traditional commercial real estate loans and SBA loans.

Hospitality Market

The hospitality market in South Dakota has been impacted by the COVID-19 pandemic, particularly in tourist areas such as the Black Hills and the Badlands. However, the state has a strong tourism industry overall, with attractions such as Mount Rushmore and the Sturgis Motorcycle Rally. Financing options for hospitality properties include traditional commercial real estate loans and SBA loans.

Commercial Real Estate Loans by Purpose

There are many types of loans available for commercial properties in South Dakota, and the best fit for you depends on your investment strategy. Here are some broad categories of financing available.

Permanent Financing

Permanent financing is a type of loan that remains in place for an extended period of time. It's commonly used to finance the acquisition of commercial properties or to refinance existing debt. Types of permanent financing include bank loans, loans from government-sponsored entities like Fannie Mae and Freddie Mac, HUD loans, credit union loans, loans from life insurance companies, commercial mortgage backed securities (CMBS) loans, and other types of loans depending on the specifics of the commercial property.

Refinancing a Commercial Real Estate Property in South Dakota

I wouldn't quite call this a separate type of loan, but I have to mention refinancing in here. These are typically permanent loans (but not always) used to pay down an existing, partially amortizing or interest-only loan.

Often you may be able to time a refinance to happen after an interest rate drop — an ideal solution — but if your loan is maturing during a period of higher rates, you shouldn't stress too much about this. We'll work with you to find the best loan terms for your commercial property by reaching out to potentially thousands of lenders. Just complete the form below, and we'll get to it.

Construction Financing

Construction financing, also known as interim financing, is used to finance the cost of construction for commercial properties. It is usually a short-term loan that covers the cost of land development and building construction. Once construction is completed, the borrower can typically convert this into a permanent loan or pay it off with a new loan.

Bridge Loans

Bridge loans are a type of short-term loan that can be used to cover costs in the interim period between the end of one loan and the beginning of another. They are typically used in commercial real estate to finance the transition between construction financing and permanent financing. Bridge loans generally have higher costs than most other financing options and are often interest-only and non-recourse.

Commercial Real Estate Loans by Type

Depending on the purpose of your loan, you will have several financing options available to meet your investment goals. Read below to learn more about specific loan types.

Bank Loans

Bank loans are a common financing option for commercial real estate in South Dakota. They can offer competitive interest rates and flexible terms, but the specifics can vary greatly from bank to bank. While they may not always be the best fit for larger, more complex projects, they can be an excellent option for smaller, simpler properties.

Life Company Loans

Life company loans are typically used to finance high-quality assets in major markets. They generally have lower loan-to-value ratios than most other loan types but offer competitive interest rates and long terms. However, they may not be suitable for riskier projects or properties in less established markets.

Agency Loans

Agency loans, offered by government-sponsored entities like Fannie Mae and Freddie Mac, are typically used for properties that are mostly multifamily. They offer attractive loan terms, low, fixed interest rates, and are non-recourse. However, there are restrictions on the amount of income that can come from other commercial uses.

HUD Loans

HUD multifamily loans are government-backed loans that are primarily used for the construction, substantial rehabilitation, purchase, and refinancing of multifamily properties. These loans offer long-term, non-recourse financing with competitive interest rates but have extensive requirements for qualification.

CMBS Loans

Commercial Mortgage Backed Securities (CMBS) loans are a type of mortgage-backed security backed by commercial real estate loans. Lenders focus more on the strength of the property than the borrower's credit, making them a good option for properties with strong cash flow.

SBA Loans

Small Business Administration (SBA) loans, such as the SBA 7(a) and SBA 504, offer attractive financing options for small businesses. However, the maximum amount for an SBA 7(a) loan is $5 million, while SBA 504 loans can go up to $20 million. They cannot be used for multifamily properties and are only available for properties that the business owner occupies.

Mezzanine Loans

Mezzanine financing is a hybrid form of financing that combines elements of debt financing and equity investment. It is typically used in commercial real estate to fill a funding gap between the primary loan and the total cost of a project.

Commercial Property Insurance in South Dakota

This part isn't about loans, but it's just as important to your investment's success. Let's talk (quickly) about insurance.

Insurance premiums have skyrocketed in the past few years, as I'm sure you know. While multifamily gets a lot of the attention, rates for insuring anything from office buildings to shopping centers have jumped significantly.

Janover Insurance Group is dedicated to finding the best insurance solutions for your commercial real estate assets in South Dakota. Click to get a free insurance quote for your property — no obligation.

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