If you’ve got a project that is going to require site development mortgage financing for the next stage of development, here are some different strategies to consider.
Keep in mind that construction financing in many cases is funded by the building phase with potentially several different construction mortgages being in place and getting paid out from different lenders during the life of the project.
This is due to the fact that each stage of the project comes with different risks and different security re-marketing challenges in the event of lender foreclosure, so lenders that will finance the actual building construction may or may not have any interest in site development.
The key to any mortgage financing is the property or properties offered for security and the exit strategy for repaying the construction loan in the future.
The simplest form of site development mortgage financing is to place a first or second mortgage on a bare land piece of property that is just at the beginning of the development stage. If the property is zoned and permitted properly for the intended use and the overall project is well planned out with sources of capital available for the next stage, then a site development mortgage can be secured for from 50% to 75% of the value of the property, depending on location and type of project.
If there is insufficient equity in the property at the present time, then a secondary piece of property can be pledged as security. The property can be completely unrelated, but will likely need to be in a strong resale market to make it easier to attract interest. Depending on the amount required and location, lenders can take residential and commercial properties as additional security as well.
In situations where site development is partially complete and the builder or developer has invested significant funds to improve the property, the appraised value of the as is development can also be used to secure site development mortgage financing. The further the project is along, the more lender interest that will be available and the higher the loan to value construction mortgage lenders will consider.
If the construction project has resale units that have been pre-sold and is in the process of securing bank or institutional construction mortgage financing for the build out, a conventional lender may also consider providing a land advance to complete the site development if there is enough equity in the property.
This is likely going to be the cheapest form of site development mortgage financing as you’re leveraging the building phase construction application to get better rates for site development work.
If you have a construction project that requires site development mortgage financing, I suggest you give me a call and I will quickly assess your requirements and provide relevant construction mortgage financing options for discussion and review.