Construction Loans - Continued...

The construction loan is just one part of the capital funding plan proposal for a given real estate development project.  The construction loan is a key part  to be sure, but it is not necessarily the key to closing the funding escrow and commencing construction activities.

The capital funding plan typically hits the rocks when it comes to financing both the pre-construction phase capital requirements and the construction phase capital requirements.  This means that if you do not provide for the pre-construction phase financing, you will never get to the closing table for the construction loan.

The most important loan in the capital funding structure is the permanent mortgage loan because the underwriting process - in point of order - has to be undertaken first.  The permanent loan represents the construction phase "exit strategy" for the construction lender, the mezzanine lender (if used) and any near-term (construction and pre-construction phase) participants who the developer does not want to be long-term equity players in the resulting project.  So the savvy developer creates the necessary capital funding plan proposal with an intrinsic understanding the "daisy-chain" must be strong at both ends to hold the weight of the project.  So, the developer's first mission is to create all the necessary due diligence documentation required to support a permanent loan forward commitment.  Once the permanent forward is acquired, then the construction loan submittal can go forward because the construction lender wants to know how their financing is going to be retired before they give serious underwriting consideration to the construction loan.  This consideration brings the pre-construction phase capital funding plan into focus because if you don't have the necessary funds for the pre-construction phase, the construction lender will not underwrite the loan because all required project funding elements are not in place.

If you are having problems understanding the necessary steps to completing the underwriting process, then contact a Rainmaker Marketing Corporation consultant today.