Call Us Today! 1.555.555.555|info@yourdomain.com
REFERRAL PARTNERS
LOAN EVALUATION
PROFESSIONAL EDUCATION
­

Commercial Construction Outlook

Banks have been tightening their construction lending for the past two years in response to market and regulatory pressures. While private commercial lenders have also raised their underwriting standards, there is still plenty of construction funding available.

Current Market for Construction Financing

The prime interest rate increased another quarter of a point on Sept. 27, 2018. This is the third increase we’ve seen this year, and we can anticipate further increases in commercial mortgage lending rates, including construction lending.

For the past year, lending sources for land acquisition and horizontal development have almost dried up. This segment is more often filled by private equity. We are currently seeing loans on raw land topping out at 50% LTV, with interest rates from 8% to 12% plus. Also, minimum loan amounts are increasing for lenders willing to make land loans; one lender is now at $5 million minimum loan size on raw land.  We are seeing a similar position on horizontal development – 50% LTV on “as developed” value, and rates in the 8%-10% plus range.

For construction lending, we are seeing similar tightening of credit – lower LTC, lower LTV, higher rates, and stricter requirements for developer experience, higher net worth, liquidity, etc.

Here’s a quick survey of our construction loan capability

LENDER 1:

  • Loan Size: $5 MM – $50 MM
  • Location: All US, except AK, HI, ND; some Caribbean, Canada
  • Property Type: All commercial, including MF; expertise in Hospitality, Resorts, Golf Courses
  • Max LTV/LTC: 65% of completion value (as defined by appraisal standards)
  • Interest Rate: LIBOR plus 750-800 BPS
  • Fees: $35,000 processing fee plus 3rd party costs
  • Lender Origination: 3 points on construction

LENDER 2:

  • Loan Size: $1 MM – $50 MM
  • Location: National
  • Property Type: All commercial, including multifamily development & construction.
  • Max LTV/LTC: 80% of completion value; up to 100% LTC (can also provide equity)
  • Interest Rate: starting at 7%
  • Fees: processing + deposits
  • Lender Origination: 2-4 points

LENDER 3:

  • Loan Size: $5 MM and up
  • Location: All U.S.
  • Property Type: Multifamily (all housing related)
  • Max LTV/LTC: 85% of construction costs.
  • Interest Rate: starting at 4.5%
  • Fees: $7500 engagement fee, plus 3rd party reports (market feasibility, appraisal, environmental, survey, etc.)
  • Lender Origination: 3 points

LENDER 4 (HUD):

  • Loan Size: $1 MM and up
  • Location: All U.S. and U.S. territories
  • Property Type: Multifamily (all housing related)
  • Max LTV/LTC: 85% of completion cost / 92% of construction costs
  • Interest Rate: 5.0%; 2-years interest only, 40 year amortization after stabilization
  • Fees: Approx. $10,000 plus 3rd party reports
  • Lender Origination: 1 point + HUD Fees (approx. 1 point)

3 OTHER CONSTRUCTION LENDERS:

  • Loan Size: $1 MM – $50 MM
  • Location: All U.S.
  • Property type: most commercial, including MF
  • Max LTV/LTC: 60-75% LTV / up to 75% LTC
  • Interest Rate: 9% to 12 %
  • Fees: deposits vary with loan amount
  • Lender Origination: 1.5 to 3 points

Quick Recap

With government programs such as HUD/FHA, borrowers can get the lowest interest rates, longest term for amortization, and generally favorable lending parameters for developers – however – these programs may take 3-4 months to underwrite, up to 8 months for HUD.  With the HUD program, the lender we work with does offer a bridge loan to help with acquisition and horizontal development, pre-construction – for strong borrowers.

To get a faster underwriting time, borrowers can go with one of our non-institutional construction lenders. The trade-off is we’re seeing rates around 10% and higher origination points, lower LTV/LTC.  As noted above, the credit environment for developers has tightened from where it was a year ago.

Free Evaluation

For a free evaluation of your construction lending needs, CONTACT Sofia Capital Ventures.

By |October 16th, 2018|Commercial Lending, Construction Lending, Private Commercial Lending|Comments Off on Commercial Construction Outlook
Barbara Leuin, Commercial Lending Expert
Barbara Leuin, Ph.D., Commercial Lending Expert, Carlsbad, CA, is a serial entrepreneur and real estate investor, with over 30 years of professional experience, including 13 years of university teaching in business and economics; 16 years of business consulting; and 5 years as a full-time real estate investor. Since 1996, she has helped start-up businesses access millions in private capital. As CEO, Barbara brings visionary leadership, team-building and leadership to Sofia Capital Ventures. She is responsible for lender relationships, broker training and identifying market opportunities.

Comments are closed.

bookimage

5 Easy Steps to Getting Financing

Sign up for our newsletter and get your FREE eBook download now.

  • This field is for validation purposes and should be left unchanged.