Posted by Chris WFL on May 03, 2005 at 08:32:49:
Makes sense. I figured this might be the case.
What if we were able to get seller to owner finance the property? Could we get a construction loan to build on the property complete project then refi when finished or within two years to pay of seller.
THanks again for all your help.
Chris
Commercial Construction Loan - Posted by Chris WFL
Posted by Chris WFL on May 01, 2005 at 22:23:05:
Not familiar with commercial lending and had some questions. Is there even such a thing as a commercial construction loan and what shoud we expect?
Looking to buy a commercial lot (about 1 acre) to build small retail building for our new restaraunt and one or two more leasable spaces. Acre has about 6000sf buildable space need 2000sf for ourselves and lease the rest.
What are lenders going to look for and what kind of rates and money are they going to want? IN W FL, Lot $300k construction guessing 300-400k. area leasing for $20-25 per ft. Need more info??? How much are lneders going to want down and what rates will we get? Any creative ideas on how to get this done?
Re: Commercial Construction Loan - Posted by Wes
Posted by Wes on May 02, 2005 at 08:21:56:
Of course there are commercial construction Loans!
The items any lender will require for retail construction are going to be similar.
Nobody is going to be able to answer your question on rates based on the limited information you provided.
However, the rates you will be offered is going to be based primarily on how strong a borrower you/your group are, thus determining what lender might do the loan.
Different lenders will offer different rates and terms but you should at least be able to count on an acquisition loan of about 55-60% of the “as-is” value of the land. Then a construction loan up to approximately 75% of the completed value of the project.
The Rate will or should be Interest Only during construction. If you are looking for a figure to use for your calculations, I would use 10%. You might have to pay a higher rate, but if you have a good relationship with a local bank, you should be able to get a much lower rate.
If your local bank cannot help, drop me a line and we will see if we can help!
wesloans@earthlink.net
Re: Commercial Construction Loan - Posted by Chris
Posted by Chris on May 02, 2005 at 15:38:17:
Wes
Thanks. I had assumed there was such a thing just not as familiar with as residential purchases.
Actually more concerned with coming out of pocket with too much cash. 50-60% of lot value is over $100k out of pocket to start. 75% of completed value of project would almost be nothing out of pocket the way porperty is appreciating around here(30+%). If we were to build this it would easily appraise at 25% more than what we had into it. DId I say that right?? YOu get what I mean. I know the banks are not going to want to see that but maybe a local bank will since they know local area???
Any ideas on how to keep cash out low??? Find hard money for lots and construction then refi when finished @ 75% of value???
Re: Commercial Construction Loan - Posted by wes
Posted by wes on May 02, 2005 at 17:28:18:
In my experience, you are facing the PRIMARY issue that kills many developement deals.
You have to think about this from the lenders point of view.
First you need the money to accuire the land (in the event it is not owned outright or brought to the table by one of the participants).
It is not the lender that wants to develop the land.
Therefore they are willing to lend you a figure based on the lands current value. Thus, if you cannot take the next step, and it is neccessary for the lender to take-back the property, they need to feel confident they can at least get their initial money back.
Next, you have to have the ability to “improve” the property as that is what the lender will expect before you get the next draw of funds.
The lender will require a first lien on the property so you have to be able to get from point “A” to “B”. That being (A) accuiring the land to (B) starting development.
As far as Hard Money, even that type loan is not going to write you one check for the entire amount you need.
I doubt you will find any that will lend over 60-65% of the “as-is” land value. Remember, at that point that is all they have to sell if you default on your loan and they are forced to forclose…
One technique to overcome this would be to offer the seller an equity stake in your development for a lower purchase price for the land. However, many lenders will only accept the purchase price as the value they base their loan, so you have to be aware of that in advance and make sure you have a lender that will lend on the “as-is” value.
Or, you might make the seller a partner and allow them to bring the property into the deal. Thus,subtracting any mortgage that might be owed on the land, the total amount of funds advanced against the lands value could be used for development.
I am sure others could offer other input. Development is certainly possible, all you have to do is look around at all of it that is going on. But, unless you have the money to smooth out the edges, you have to be williing to make deals and give up some of your potential profit in order to get to the finish line.
Good Luck!
Hope some of that made sense as I have already had a very long day…