Construction financing for land servicing requirements for a new subdivision or other project where the capital required will be used to install services such as water, power, communications, and sewer, are available from both our institutional and private mortgage lending base.
The most common request for land servicing financing is for services that are to be installed on the actual site where future building is expected.
That being said, there can also be construction financing requests to provide the necessary funding to bring services to the lot line, and to finance development bonds or letters of credit as well.
Most construction lenders are only interested in funding work that will incrementally increase the value of the property, so where there are off site financing requirements, there will need to be considerable equity in the property to support a non value added investment.
Because a construction development loan for land servicing is not typically an immediate income producing activity, its not uncommon that one of the developer’s funding requirements is that the loan include prepaid interest to service the debt until such time as there is a cash flow to make the required monthly debt servicing payments, or to retire the loan in full.
If there is no way for the developer to cash flow debt service during all or a portion of the loan period, then the financing facility is more of an equity based land mortgage, which may fall more towards quasi institutional and private mortgage lending solutions.
Bank and institutional lenders can still potentially provide equity based land servicing loans, but there will need to be a low loan to value requirement and very strong personal guarantees offered from the borrower or borrowers.
Outside of debt servicing, the two biggest considerations by the lender are market value and exit strategy.
With respect to market value, the lender is going to be interested in an appraiser’s opinion of value before and after the work is completed to the property as well as the geography in which the development is being completed.
In terms of exit strategy, there can be a number of different scenarios for repayment. Each potential scenario will have to be well documented and involve payment sources that are highly credible and verifiable.
If you’re in need of construction financing for land servicing, I suggest that you give me a call so we can discuss your project requirements together as well as go over potential construction financing options available to you.