“Cash Flow Management Is Key Aspect of Condo Construction Financing”

Condo construction financing for condominium projects is one of the more common forms of commercial construction in the province of Ontario. These projects are typically into the ten’s of millions of dollars and some even higher, depending on the area and the market supply and demand dynamics.

Like most construction financing, application for condominium construction financing is similar in that the real estate development has an established fair market value at the beginning of the project as well as at the end of the project, based on the work being completed. What’s somewhat different with condo construction loans, however, is how lenders can determine the amount of money that can be advanced against a given project.

For instance, lets say that the completed condo units will have a market value of $300,000 per unit upon completion. This is assuming that the developer and the completed project will be able to receive condo certification status which can only be granted when all work is done. If at the end of construction condominium status can not be achieved, or there is some sort of administrative or bureaucratic delay in the process, then the end product, from a fair market value point of view, would likely be worth considerably less per unit.

As a result, condo construction lenders will tend to error on the side of caution, at least at the outset of the project, and provide financing as a percentage of the end fair value with no condo status being achieved. Construction lenders will also require more than 50% of the units on average to be presold prior to any construction draws being advanced as an added comfort that the project will be able to generate the cash flow at the end of building to repay the condominium construction loan.

This is why cash flow management is so critical to condo projects as 1) there will be significant equity required at the start of the project to get the first construction draw advance, and 2) if there is any delay in getting condo status, there will have to be funds available in the cash flow to complete the work and cover the carrying costs before units can be sold and the full proceeds from sale received.

If you are planning a condominium project in Ontario or are in the middle of one, please give me a call so I can go over your requirements with you and then discuss different condo construction financing options that can meet your needs.

Click Here To Speak With Construction Mortgage Broker Joe Walsh

The post Condo Construction Financing first appeared on Ontario Construction Loans And Mortgage Financing.

“Construction Loans for Residential and Commercial Condo Projects Are All About The Pre-Sales”

If you’re planning out a residential or commercial condominium project, remember that the single most important element of an application for construction financing is going to be the pre sales you have in hand and the marketing plan you have in place for the remainder of the units.

Of course the lender is going to look at the plans and post construction appraisal which will also be important, but without a significant number of presales, its unlikely that your project will get any serious lender consideration from construction financing sources providing the better rates.

How many presales will depend on the project and the amount of resale mark up that is built into the resale price. A general rule would want to see the total value of pre sold units to exceed the projected cost of production plus 20%. In this way, both the builder and the lender know the project can cover its cost before construction even begins.

So depending on the percent market up over cost, there can be some significant variation to the number of pre sale units a lender wants to see.

This example is far from a hard and fast rule for establishing what amount of presales are sufficient at the outset of the construction phase. Some lenders may have an absolute percentage sold while others will assess on a case by case basis.

And presales that count are ones where signed documentation between the seller and prospective buyer is in place and a deposit held in trust. Construction mortgage lenders will also be interested in the terms and conditions of the pre-sale agreements to get comfortable with the level of commitment that is created.

The on going marketing program for the remaining units will also be of interest so that a comfort level can be achieved as to how much effort will continue to be applied into the sales process until all or most of the units are committed.

By having the construction project well mapped out in terms of costs, contracts, drawings, time lines, permits, and pre sales, the construction financing process will be completed much faster and you’re going to be in a position to be considered for better terms and rates.

Click Here To Speak With Construction Mortgage Expert Joe Walsh

The post Condo Construction Loan Approvals first appeared on Ontario Construction Loans And Mortgage Financing.