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Construction Loans, Lending, Investing, Fundings & Financings...
Prior to
the advent of Internet-based programs, non-recourse
construction loans were - by and large - the province of the  federal
government that provided tax-exempt bond financing and mortgage loan
insurance for certain types of commercial income-producing properties
and lines of business. Today, non-recourse construction loans can
be obtained by increasing the amount of at-risk equity contributions to
the transaction - the sufficiency of which provides enough financial
incentive for a lender to provide non-recourse construction financing
and you make this work by including a commercial
real estate syndication in the capital stack.
Increasing
the equity capitalization is just one of the solutions for obtaining
non-recourse construction loans. In fact, there are a basket of
transaction terms that can be modified to induce a lender to make the
construction loan, including:
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Increases
in the interest rate the notes bear; and
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Increases
in the origination and placement fees/points on the note; and
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Posting
additional collateral (not a smart option, but it is one that
works); and
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Creating
a condominium ownership plan for a portion of the property and
immediately applying the sales proceeds against the outstanding
indebtedness; and
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Creating
a tenants-in-common fractional real estate ownership interest
syndication to provide near-term equity contributions that reduce
the loan (per the heading of this page).
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Ultimately,
these items are used in combination to make the transaction attractive
to the lender. In many cases, the reduction in the origination
fees (created by the reduction in the origination amount of the loan)
can be waived and the points increased the same dollar amount as if the
higher loan-to-cost ratio had been used.
Continued
on the following page.
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Do
You Know The Secret?
When it comes to commercial real
estate development finance, it doesn't matter whether you need to raise
$5 million or $50 million, the out-of-pocket costs, advance fees and
project due diligence costs will always require the same relative
investment dollars the promoters have to fund. Do you know what
that amount is? Do you know the Secret? |
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