Signs of an Early Spring for Construction Refinancing?
February 1st, 2012
Signs of an early Spring for Construction Financing?
If the question is, "are the banks once again willing to offer and commit to construction loans", then the answer would have to be a resounding "yes", (however, to be clear, with some heavy qualifiers such as the developer/borrower needing to have a successful track record, be financially very strong and in possession of, or in contract to buy, a well-located property acquired at a good basis with all requisite entitlements and approvals either already in hand, or at least well within sight).
We have recently obtained more than $38 million of construction loan commitments, with more in the pipeline, for a variety of projects including: $16,160,000, or approximately 65% loan-to-cost, with an interest rate of 4.5%, for a $25 million ground-up luxury condominium development in TriBeCa with an expected sell-out in the $40 million range; $9,554,000, or approximately 60% loan-to-cost, with an interest rate of 4.5%, for the acquisition, gut rehab and conversion to residential condominiums of two 25-foot wide, seven-story commercial loft buildings to 7 luxury condominiums (also located in TriBeCa); and a $10,000,000 construction loan (based on 70% of the prospective net sellout value) with an interest rate of 5% to develop a 55-and-over townhome condominium community on 18.45 hilltop acres overlooking Long Island Sound in Port Jefferson Village, Long Island. Winter & Company also successfully sourced more than $8 million of joint venture equity for the first above-referenced TriBeCa project.
The common themes shared by the above-referenced projects (and thereby making them financeable) include: 1) exciting locations, with the sites acquired at an attractive basis, 2) developers with a demonstrated record of success in their chosen marketplace and product type, with significant net worth and, 3) most importantly, with real liquidity.
For obvious reasons, banks need to feel that they are lending money to a developer who has the financial depth to survive problems and delays such as stop-work orders, cost overruns, market reversals and the dozens of other things that can and do go haywire during the 30 - 36 months of a typical ground-up development project.
The financing can often be structured in two phases, first with the closing of a site acquisition loan, and the later, once all the plans have been finalized and D.O.B. (and, if applicable, Landmarks) approvals have been obtained, with the closing of the construction loan.
It is also worth mentioning that Winter & Company is an advisory firm that is somewhat unique, in that it also has an in-house bridge lending affiliate called W Financial (www.w-financial.com), which can sometimes prove helpful to provide bridge financing as an interim solution when a time-of-the-essence deadline looms and a bank loan is simply taking too long to close. That scenario actually occurred recently with one of the above-referenced deals where the committed bank loan could not close until both the D.O.B. and Landmarks approvals were finalized, yet the time-of-the-essence closing date needed to be met. Thus far, the one certainty about the impact of the Dodd-Frank Act is that it has further slowed down the speed at which banks can underwrite, approve and close loans.
So while there can be no doubt that construction lenders are being particularly selective in an effort to avoid repeating the disastrous mistakes of the recent past, little by little, there are more dollars available to developers who've got "the right stuff", as well as having the right advisors to help them properly market their prospective construction loans to the lending community.
Best regards,
Gregg Winter
Take a look at Winter & Company at http://www.winterandcompany.com
Signs of an early Spring for Construction Financing?
If the question is, "are the banks once again willing to offer and commit to construction loans", then the answer would have to be a resounding "yes", (however, to be clear, with some heavy qualifiers such as the developer/borrower needing to have a successful track record, be financially very strong and in possession of, or in contract to buy, a well-located property acquired at a good basis with all requisite entitlements and approvals either already in hand, or at least well within sight).
We have recently obtained more than $38 million of construction loan commitments, with more in the pipeline, for a variety of projects including: $16,160,000, or approximately 65% loan-to-cost, with an interest rate of 4.5%, for a $25 million ground-up luxury condominium development in TriBeCa with an expected sell-out in the $40 million range; $9,554,000, or approximately 60% loan-to-cost, with an interest rate of 4.5%, for the acquisition, gut rehab and conversion to residential condominiums of two 25-foot wide, seven-story commercial loft buildings to 7 luxury condominiums (also located in TriBeCa); and a $10,000,000 construction loan (based on 70% of the prospective net sellout value) with an interest rate of 5% to develop a 55-and-over townhome condominium community on 18.45 hilltop acres overlooking Long Island Sound in Port Jefferson Village, Long Island. Winter & Company also successfully sourced more than $8 million of joint venture equity for the first above-referenced TriBeCa project.
The common themes shared by the above-referenced projects (and thereby making them financeable) include: 1) exciting locations, with the sites acquired at an attractive basis, 2) developers with a demonstrated record of success in their chosen marketplace and product type, with significant net worth and, 3) most importantly, with real liquidity.
For obvious reasons, banks need to feel that they are lending money to a developer who has the financial depth to survive problems and delays such as stop-work orders, cost overruns, market reversals and the dozens of other things that can and do go haywire during the 30 - 36 months of a typical ground-up development project.
The financing can often be structured in two phases, first with the closing of a site acquisition loan, and the later, once all the plans have been finalized and D.O.B. (and, if applicable, Landmarks) approvals have been obtained, with the closing of the construction loan.
It is also worth mentioning that Winter & Company is an advisory firm that is somewhat unique, in that it also has an in-house bridge lending affiliate called W Financial (www.w-financial.com), which can sometimes prove helpful to provide bridge financing as an interim solution when a time-of-the-essence deadline looms and a bank loan is simply taking too long to close. That scenario actually occurred recently with one of the above-referenced deals where the committed bank loan could not close until both the D.O.B. and Landmarks approvals were finalized, yet the time-of-the-essence closing date needed to be met. Thus far, the one certainty about the impact of the Dodd-Frank Act is that it has further slowed down the speed at which banks can underwrite, approve and close loans.
So while there can be no doubt that construction lenders are being particularly selective in an effort to avoid repeating the disastrous mistakes of the recent past, little by little, there are more dollars available to developers who've got "the right stuff", as well as having the right advisors to help them properly market their prospective construction loans to the lending community.
Best regards,
Gregg Winter
Take a look at Winter & Company at http://www.winterandcompany.com
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