Financing is available for all stages of Residential subdivision construction including land acquisition, site planning, site development, vertical construction, and construction bridge loans when cash flow runs short in the middle of development stage.
One of the keys to any successful residential subdivision project is making sure that cash is available as required through out the project so that there are no project delays or slow downs that can generate additional costs or cause the project to stall out completely.
One of the challenges with achieving a seamless cash flow during construction and site development is matching the funds required a particular stage with a financing source that can provide funding for the work done to date and the market value inherit in the property.
It’s not uncommon that each stage of financing can require a different construction loan which can come from a different lending individual or entity.
For instance, the first form of construction and development financing may be for the acquisition of the land itself from which the subdivision will be formed. A land loan will likely fall in the 50% to 60% loan to value range and will provide capital strictly related to the purchase.
Once acquired, the developer is going to start putting their own funds into the project. As the project increases in value, additional capital can be borrowed against the increase in equity.
There are also times when the financing targeted for a certain stage cannot be accessed until certain milestones can be reached which can be a real problem if the project no longer has sufficient cash to get to the next milestone.
An example of this would be during the period between acquisition and subdivision development approval. Once the property has become shovel ready with respect to approval of the project by the local municipality and the developer having all relevant permits, zoning, and studies in place to supply the approval, the property is likely going to be appraised for considerably more value than at the time of acquisition.
But in order to leverage the value created by project approvals, the approvals need to be in place. When you have 80% of the work done to get the approvals in place, there is not necessarily a recognition on the part of lenders that the property has yet gone up in value from a lending security perspective as the approval milestone has not yet been achieved.
In these situations, a developer may turn to a shorter term financing solution which could also be categorized as a construction bridge loan where a development based lender will consider the work done to date to some degree. For instance, a more specialized lender may not accept that the property value has increased yet, but because of recognition of the work done, they may decide to provide a second mortgage against the property to a higher loan to value. Where the first mortgage may have been issued at 50% loan to value, this short term bridge loan may be provided at 75% of the original purchase price, providing necessary capital to the project to allow it to get to the next key milestone.
Once the project is ready for site development and construction, the property will be reappraised and the existing debt refinanced into a larger development loan.
This is one example of many where alternative short term financing solutions may need to be inserted into the project to bridge any shortfalls in capital required to meet a key milestone required for future funding.
Regardless of the stage the subdivision project is at, we have financing solutions available for most situations and welcome the opportunity to assist in arranging debt financing throughout the project as required.
If you have a residential subdivision project that requires financing right now, or you’re just planning ahead and want to get a development or construction loan arranged, I suggest that you give me a call so we can quickly assess your situation and requirements, and discuss relevant options available to you.