To Commercial construction financing in place, there has to be a way to pay it back.

And in situations where the property to be constructed will be retained long term by the property owner, an exit strategy will need to be put into place that is satisfactory for the construction lender.

If the constructed property is owned by a company or group of companies with established cash flow, then a standard take out mortgage will likely be arranged with a bank or institutional lender that is interested in the deal.

The construction lender may even require this future take out mortgage to be committed to by the lender prior to construction so that the construction lender has confidence in the borrower’s ability to qualify for a timely take out.

This would constitute two step or stage construction financing whereby in order to get the funds in place to complete construction, the long term financing must also be arranged as well.

But what if the company that requires the construction financing is not well established or cannot provide the historical debt servicing capacity that a bank or institutional lender will require?

In this case, the exit strategy for the construction lender will require a commitment from an equity lender that is prepared to pay out the construction lender based on providing financing against the completed project and potentially other properties offered as security, or cash investment, if there is not sufficient market value equity in the completed project to support an equity based loan.

The rationale here is that an equity based loan for one or two years can provide the operating company and/or holding company time to establish cash flow for debt service so that a long term commercial mortgage can be secured at the end of the commercial equity mortgage term.

And in this situation, the private lender or equity lender will also have to be comfortable with the future exit strategy as well as they will need to be paid out in one or two years once the lending term is over.

It will not be possible to get a commitment two years out that is of any real value, so the borrowers will have to provide a strong enough case and a strong enough security position to convince the equity lender that their exit will be in place.

So this essentially becomes three step financing where step two and step three have to be sorted out to some degree before the construction financing can be put into place.

In order to accomplish all of this the property owner/borrower needs to be committed to a multi year financing strategy that will allow exit strategy one and exit strategy two to be arranged on a timely basis.

If you require a multi step commercial construction financing strategy for either two step or three step financing, I suggest that you give me a call so we can go through your situation together and provide different financing options for your consideration.

Click Here To Speak Directly To Construction Mortgage Broker Joe Walsh For A Free Assessment Of Your Commercial Construction Financing Options

The post Multi Step Commercial Construction Financing first appeared on Ontario Construction Loans And Mortgage Financing.

“Make Sure You Can Access Commercial Construction Financing For Your Next Project Before You Get Too Far Into It”

It’s not a given that a commercial construction loan is going to be forthcoming for any type of project you may choose to undertake. Or even if you can secure a construction loan, the rates and terms can be considerably skewed depending on the project.

Remember that for most construction lenders, the focus on their lending decision when it comes to construction loans is what the end market value for the project is likely going to be, and in unlikely event that the lender had to take over the project before completion, how hard would it be to market the project in the short term in order to reclaim the funds advanced.

At any period of time, there are projects that have stronger market demand than others. The better rates and terms, leverage, and lender choices will follow around those projects. From a builder or developer point of view, less capital will need to be invested in these projects with a higher potential profit margin due to lower cost of financing.

On the flip side, building against the current can not only result in larger down payments and a higher total cost of borrowing, it can be hard to locate a source of construction financing at all. This can delay or potentially kill a project that’s already had some money put into it.

The best solution to guard against a lack of construction financing or rates and terms you can’t live with is to start the financing process early before you spend money or enter into binding commitments. Select an experienced construction mortgage broker who can help you navigate the market and potentially introduce you to sources of construction financing you hadn’t previously thought of or were aware of. Getting a mortgage broker working for you can also allow you to focus more time on project planning versus spending all your time hunting for construction financing

The key here is to not assume that money will always be available to you, when you require it, for any and all types of projects. And even if there are lenders that can finance your project, make sure you have left yourself enough time to find them before you start incurring any type of delay costs.

Click Here To Speak With Construction Mortgage Broker Joe Walsh

The post Commercial Construction Loans Can Be Project Dependent first appeared on Ontario Construction Loans And Mortgage Financing.

“Commercial Construction Loan Criteria Can Vary According To Project Size, Type, and Location”

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.

Click Here To Speak With Construction Mortgage Broker Joe Walsh

The post Commercial Construction Loans Vs Residential Construction Loans first appeared on Ontario Construction Loans And Mortgage Financing.

“The Bigger Your Construction Project in Terms of Dollars And Complexity, The Sooner You Need to Start Looking For Construction Financing”

Whether its a residential or commercial project, for larger structures, especially ones with multi units that will be sold at the end of construction, the process for arranging a construction mortgage loan can get pretty involved and time consuming.

Similar to most types of business financing, the borrower or builder always assumes that the process will be relatively quick and that the lender will be able to interpret their information easily and be flexible with their requirements in order to render a decision in the borrower or builder’s favor.

And similar to most other types of financing, that assumption is almost always false.

There are a number of reasons for this.

First, even though mortgage lenders are fond of larger scale projects because of the financing fees they can earn, they are all very particular as to what they want to see in place prior to first providing a commitment and second, actually advancing any funds.

And the cheaper the source of money, the larger the requirements put forward by the lender.

Second, the underwriters that review your deal are people, but also individuals with their own learning and assessing styles. The larger and more complex the project, the more likely it will challenge human comprehension to some degree, causing more explanation and support over a longer period of time.

Third, the project doesn’t just happen over night. So, when you start the process earlier, with the “RIGHT” lender profile for your project and requirements, you are providing the lender with the opportunity to get to know you, get to know how you operate, and to see the project planning stage evolve before lender funds are required. This relationship building can make or break any deal. And like any relationship, it takes time to develop one where someone is prepared to act in your favor, especially if you are border line on some of the requirements.

Fourth, even though you may feel you understand what a construction financing source will require, there is no guarantee they will agree with what you provide to them as being sufficient for their lending guidelines. For instance, say that you’re building a commercial condo project and have the 60% level of presales that a construction lender requires. But when you go to provide the support for the sales, the lender reduces the total to 40%, based on how they verify presales, leaving you well outside of the stated requirements. The more time you have in advance to deal with this, the more likely you’re going to be able to figure out how to get the appropriate documentation in the lenders hands in order to get a working commitment for construction mortgage financing.

All of this is a balance in that you also need to be far enough along with the project planning to get someone to take a serious look at it.  Weak or thin information in the early stages will not get you an audience with a decision maker, nor inspire any confidence.

Click Here To Speak With Construction Mortgage Broker Joe Walsh

The post Don’t Leave The Construction Financing Process Too Long first appeared on Ontario Construction Loans And Mortgage Financing.