Construction Loans

In this market the single hardest type of loan to get financing for is a Construction Loan. Due to the risk and capital lenders have to assign to construction loans, most lenders have determined that construction financing is just not profitable in this market or is to high risk for their already struggling balance sheet. Speculative deals for investment real estate just are not getting done at all in this market unless the loan to value is ridiculously low and the Borrower(s) very strong. However, pre-leased properties are getting done under the right circumstances, as are well-supported by market demand apartment buildings or other leased property types. We have the following sources available to us to fund construction loans.

a) Traditional Banks – some traditional Banks will still consider funding simple construction loans, but typically only if there is an end game quick at hand, namely a pending sale, lease, or quick refinance opportunity. Traditional Banks are very cautious about taking on long-term construction and hence market risk. Interest rates for projects that are getting financed by Traditional Banks varies widely but is typically above 6%, is on a interest only basis, and has a loan term usually less than one-year. Advance rates also vary largely based on the Bank but typically do not exceed 75% of cost (except for SBA / USDA financing for owner-occupied properties where it may go as high as 85% of cost). For owner-occupied properties or those to be owner-occupied, construction financing is more readily available if the project can get qualified for an SBA 504, SBA 7A, or USDA loan once completed. We can work with Borrowers to get such financing in place to help facilitate their construction financing.

b) Private Lenders – some private lenders will consider construction financing, but typically only if the overall request makes sense and there is an end-game close at hand. They also are not taking on long-term projects or speculative projects unless very strongly supported by the Borrower(s). Interest rates typically start at 9% and go as high as 20% for construction loans from Private Lenders.

c) Hard Money Lenders – in some cases hard money loans are available for construction projects. These projects typically need to be very short-term in nature with an immediate end-game available either in a lease, a sale, an SBA approval with end financing, etc. These lenders are not looking to take on long-term construction risk, nor do they want to manage the project during construction. Advance rates typically won’t exceed 65% of total cost, although in some cases additional collateral can be pledged to help cover the request. Interest rates are typically 12% to 16% with high loan fees of 2% to 6%.