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Commercial Construction Financing Explained
Manage episode 156136184 series 1177974
Το περιεχόμενο παρέχεται από το Todd Tretsky. Όλο το περιεχόμενο podcast, συμπεριλαμβανομένων των επεισοδίων, των γραφικών και των περιγραφών podcast, μεταφορτώνεται και παρέχεται απευθείας από τον Todd Tretsky ή τον συνεργάτη της πλατφόρμας podcast. Εάν πιστεύετε ότι κάποιος χρησιμοποιεί το έργο σας που προστατεύεται από πνευματικά δικαιώματα χωρίς την άδειά σας, μπορείτε να ακολουθήσετε τη διαδικασία που περιγράφεται εδώ https://el.player.fm/legal.
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The total costs on a commercial construction loan include:
- land acquisition
- hard costs
- soft costs
- contingency reserve (5% or less)
So, then what is the loan to cost? It is your total cost divided by the construction loan amount, which is then multiplied by 100.
For an example, let's say a developer in Miami wants to construct an office building. He needs $3.2 million loaned. His total costs are $3.8 million. When we divide 3.2 by 3.8 and multiply it by 100, we then get a cost ratio of 84. This is a little too high for industry standards, and most commercial lenders want to see a ratio of 80% or less because the developer has 20% equity in the project. This puts some skin in the game for them.
The best way to guide a developer to get to the total cost of 20% or more is to have the developer acquire the land. The developer should also have the architectural and engineering plans ready in order to get into a good equity situation.
We have seen people take loans with less than 20% equity, but it's not terribly common.
Here at CRE we specialize in commercial construction loans, and if you have any questions or concerns for us, please don't hesitate to contact us!
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