The basics of how a commercial construction loan operates is not going to be a whole lot different than a residential construction loan, other than there may be more draws required and the detail of what needs to be covered off at each draw stage may be more in depth.
And in many cases, there are similar lenders involved with both residential and commercial projects. The main difference with commercial construction loans is that due to the wide diversity of commercial property types, construction mortgage lenders will tend to specialize in certain profiles of commercial construction projects to better manage risk.
There are also contributing factors to how commercial construction mortgage programs work as well. For instance, does the project lend itself to any type of mortgage insurance programs? Is the project size large enough to attract the consideration of mezzanine lenders or investors? Can the project be syndicated among a group of lenders that are prepared to share the risk associated with the build? Does the exit strategy for repaying the construction loan allow for a higher loan to value than would otherwise be considered?
Because of the potential size of commercial construction projects, bank and institutional lenders will look at these opportunities as one off lending scenarios where there is no opportunity for a longer term take out mortgage to be secured in addition to the commercial construction financing. With residential construction loans, banks and institutional lenders will typically not entertain a construction mortgage request unless the applicant is prepared to sign up and qualify for the long term take out mortgage before construction even begins.
As with residential construction financing, private mortgage lenders are very active with commercial construction lending as well. But for the majority of the private lenders out there, the project size needs to be under $2.0 M. Larger projects can still be funded from private sources, but these tend to be more organized groups that syndicate resources and are very focused on certain types of projects to once again reduce risk of loss.
And similar to residential construction financing, commercial construction mortgage draw management can make or break the cash flow of any given project.
If you require a commercial construction loan, I suggest that you give me a call so I can go through your requirements with you and discuss different commercial construction financing options that will potentially meet your needs.