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.
Hope some of that made sense as I have already had a very long day…