While in theory that can make perfect sense, in reality there can be many complicating factors that don’t allow things to play out so clean and neat.
When posed with the question of how to finance a residential subdivision development, most people would assume that there would likely be financing required for the land purchase, the planning and site development, and for the build out of the residential homes.

Financing complexity can come in many forms depending on the specific subdivision being developed.

For instance, even though a subdivision project is classified primarily as residential, it may have a commercial component to it which could require a different form of financing.

Lenders that fund development projects will also be very focused on the achievement of different milestones at different times in the project which might not match up with the cash flow needs of the developer.

Basically, each stage of subdivision development can require a different form of financing so if key milestones can’t be met to complete a certain stage, the property owner or developer might not be able to attract the additional capital required to continue to move the project forward.

Here’s an example to better make this point.

Let’s say that a developer has acquired property and secured a first mortgage at 50% loan to value on the bare land to complete the purchase. This would be the first stage of required financing. Then the developer starts spending his own money to move the planning process along and do whatever site development work he is allowed to do at this point.

In order to get stage two financing for some of the site development costs, the project will require a new appraisal to determine what the value of the property will be once approvals are in place and the project is shovel ready.

The challenge at this stage of development is that regardless of how much money the developer ours into the property, its hard for him to be given credit for improving the land until the shovel ready milestone is reached. So if the project all of a sudden does not have the cash to get to the next milestone, it can be very difficult to secure additional capital.

One way we deal with this type of situation, which can be quite common, is to work with lenders that have considerable development experience which allows them to better assess the progress of the project prior to the full approval milestone. If the body of work done to date shows the project being on track and heading to a profitable conclusion, a private lender may be able to place a price second mortgage against the property that will provide enough incremental capital to get the developer past the next milestone required to refinance everything into a larger development loan.

This is just one of many examples of how project the manner in which project details play out can work against getting subdivision financing in place.

In order to get to the next stage of the project, there are times when alternative short term solutions need to be put into place as outlined in the example above.

Our focus is help you secure all the funding you will require for your project from land acquisition through building construction as well as the other requirements that may materialize in between.

If you are in need of residential subdivision development financing, please give me a call so we can go over your particular situation and discuss potential options for providing the necessary funds to move the project forward.

Click Here To Speak Directly to Toronto Mortgage Broker Joe Walsh

The post Residential Subdivision Development Financing first appeared on Toronto Mortgage Broker.

When we’re looking at requests for residential condominium development financing in Toronto and other parts of SW Ontario, one of the challenges that we many times have to try and work through is a lack of presales.

While there is certainly variability from one lender to another regarding their presales requirement, in most cases it falls into a range of 70% to 75%.

In many cases, when a developer inquires about condo development financing, they are well along with the project, own the land, and have completed a certain portion of the work, but now require additional capital and may have significantly less pre-sales than a lender is looking for.

In these situations, instead of providing a development loan, we will look to provide a bridge loan against the value of the property so that money can be obtained to carry on work and time can be bought for more pre-sales to take place and eventually get into the 70% to 75% range.

This can be a very realistic strategy in that the work completed to this point has likely added value to the property, potentially considerable value.

The bridge loan may also need to be in a second mortgage position behind an existing first mortgage which is also something that can be accomplished through some of our bridge lenders.

Provided that there is enough equity in the property to support additional borrowing, the bridge lender is going to be interested in the deal, especially if they see a clear path to the project getting their pre-sales up to a high enough level to allow for a larger condominium development loan to be approved.

When the condo development loan gets into place, the bridge loan will get paid out and the project can continue.

While there are many different challenges that can face a residential condo construction project, the challenge of not enough pre-sales is one of the most common and using a bridge loan as an interim step to getting you to a larger development mortgage is great method for getting around this issue.

If you have a residential condo project you are currently planning, or one you’re in the middle of where funding is required, I suggest that you give me a call so we can go through your situation and discuss the most relevant financing options that are available to you.

The post Residential Condo Development Financing first appeared on Toronto Mortgage Broker.

Land development loans are available through our institutional, sub prime, and private lending sources for projects in the Toronto area, Greater Toronto Area, and Southwestern Ontario.

Depending on the project, the majority of financing we put in place for things like installing services and infrastructure related to a vertical construction build requires an equity driven financing solution as their is no review at the land development stage to service debt.

As a result, many property development loans are provided by private mortgage lenders, especially when the amount required is under $2,000,000 and only a second mortgage position is available to the lender.

Larger property development loans can also be arranged but through institutional or sub prime sources.

For Ontario based projects, we are able to secure financing before and after approvals are in place which can be crucial to keeping the project on track during a permitting and approval process that can take weeks and months longer than anticipated.

Financing can be arranged from projects that are just in the planning stage as well as projects that are well under way or even near the end where additional capital is required to complete the remaining work.

The first step in determining your land development loan options is to give me a call so we can quickly review your situation on the phone together and get right into discuss the most relevant options that are available to you.

Our assessment process does not come with any cost or obligation to you and we try to complete it as quickly as possible so that no time is being wasted determining if we can help you or not.

Give me a call at 416 464 4113 to book a time when we can discuss your financing requirements.  If you get my voice mail, leave your name, number, and best time to call and I’ll get back to you as soon as I can.

Click Here To Speak Directly To Toronto Mortgage Broker Joe Walsh

The post Land Development Loans For Residential And Commercial first appeared on Toronto Mortgage Broker.

We are now heading into the last week of January which brings us that much closer to the start of the spring construction season.

Certainly there is construction year round in Ontario, but the bulk of all completed work happens in the period between snow falls.

So while many land development and building projects are in the planning stage for completion in 2013, the financing to carry the cash flow of many of the projects has not even been applied for yet.

As I have previously written, the working assumption for property owners, builders, and developers is that lining up financing will be an easy, straight forward process that can be started and completed just before the work commences.

This can even be the opinion of experienced borrowers that have difficulty in the past with the project, but still put off getting the funding in place for their next project to next to the last minute.

In my opinion, waiting to close to the time you’re going to want to start building is always asking for trouble which leads to delays and worse.

Getting construction financing or a land development loan in place and getting a good deal collectively require time to target the right sources of financing for your particular project type and geography.

By starting early, you may even find that you have time to make adjustments to the plan and budget that better meets a lender’s criteria versus force feeding the final project plan onto rigid lenders, hoping to get a financing fit.

For example, for certain types of projects relevant lenders may have approved contractors or even approved material sources that need to be used for any projects they end up financing. If the lender offer is a great fit for your needs, but you can’t meet certain requirements that could have been addressed earlier in the planning process, then a potentially optimum financing commitment will be lost when it didn’t need to be.

Lenders can also require incremental third party reports to support valuations, cost estimates, and so on. If there is not enough time to complete the requests for incremental data, you once again can lose out on otherwise acceptable and perhaps preferred financing.

And when that happens, you can’t assume that the alternative construction loan source you end up working with is going to provide as good a rates or terms.

So if you have a real estate development project or construction build of some form that will require construction financing in 2013, the two keys to getting the financing in place that you require is to 1) start early, and 2) work with an experienced mortgage broker that has placed construction loans for your type of project, in your geography.

The post construction and development financing first appeared on Toronto Mortgage Broker.

When looking into construction financing for a commercial project, its going to be important to get a semi accurate assessment of how much financing you can hope to secure before getting to far into the project.

Many times the property owner can start out with assumptions or guidelines related to being able to secure a construction loan that are inaccurate which can create problems completing the work on time and in budget.

So here’s a few things to keep in mind about how a lender undertake a commercial construction financing process.

First, you are better off reviewing, in detail,  your plans and preliminary budgets with relevant construction lending sources prior to spending too much money.

There can be a tendency to make assumptions as to what costs a lender will cover, and what value they will assign to the work completed prior to you speaking with them. If your assumptions turn out to be off by a wide margin, it may become difficult to arrange financing with what you have to work with at that point as it may be difficult to alter the scope of the project for various reasons.

Second, the fundamental basis for approving a construction loan is going to be based on the lender’s opinion of the property value before, during, and immediately after construction. So its going to be important to support property values through third party appraisals at all relevant intervals of the project.

The starting point is always going to be “what is the land worth today in its as is state?” So if you paid $300,000 for a piece of real estate 60 days ago, its unlikely that a lender will now consider it to be worth any more than that.

Property owners and builders can get overly hung up on getting the budget for the project financed instead of the market value of the end product.

For example, if you have a $5,000,000 construction budget for a project to be erected on a $500,000 piece of property, the starting point would be that a construction lender would consider financing 65% to 70% of the project value.

But what is the project value?

On a cost basis, one can argue that the project value is $5,500,000.

But if we get a qualified appraiser to come up with a post construction value of the property, based on the plans and budgets, the amount can be more or less than $5,500,000.

And there is a real risk of it being less if the scope of the construction work provides building improvements and functionality that are going to be unique to the future tenant(s). A market value appraisal may provide significant discounting of the value associated with a “non standard construction”, providing a lower baseline that a construction lender will finance from.

Another way of putting this is that a construction financing source will provide up to 65% to 70% of market value of the completed project, to a maximum of the budgeted amount.

Third, any shortfall between what a construction mortgage provider is prepared to advance and your total capital required, is going to have to be invested by the builder in the form of cash or through leveraging of other real estate assets, which is not uncommon and can be an effective solution to make the numbers work.

Once again, its important to have all of this understood before you spend very much money so that the project can be structured within the scope of what can realistically be provided by a construction loan source.

If you have a commercial construction financing requirement for a project you are planning or are in the middle of, I suggest that you give me a call so I can go through your requirements with you and discuss different financing solutions that may be available to you.

Click Here To Speak With Toronto Mortgage Broker Joe Walsh For A Free Assessment Of Your Commercial Construction Financing Options

The post Commercial Construction Financing Assessment Process first appeared on Toronto Mortgage Broker.

Commercial site development financing typically will depend a great deal on the location of the development as well as the type and structure of the development.

For instance, here in Ontario, there is a lot of site development financing available, but most of it will not venture beyond the boundaries of the Greater Toronto Area or GTA.

The same is true in other parts of the country where construction financing sources tend to focus heavily on the major metropolitan centers.

The reasons for this are fairly obvious.

Within larger markets, the ability to successfully exit a project in the event of borrower default is going to be higher in a larger market than in a smaller one, all other factors being equal.

And when you have markets like Toronto, Vancouver, Calgary, and Edmonton where the real estate activity is high and and growing, there is likely going to be more opportunities not only for the borrower to be successful with their project through resale of lots, but also for the lender in the event that the project stalls out for some reason.

This is not to say that commercial site development financing cannot be secured in solid communities that are outside of the main population centres, but the process for locating proper financing and getting it in place can certainly be a lot harder to accomplish, taking more time and money to complete in many cases.

The sources of site development financing that will look at projects in more rural or less populated areas can also be hard to locate as many of them will work through broker networks when originating and placing development financing.

The challenges will even relate to locations where the population is at or near hundred thousand so its not safe to assume that just because the project is well designed and a good fit for the local market that it will be easy or straightforward to get the commercial site development financing you are looking for.

If you’re planning out a commercial site development project either for lot development for resale, or internal use, or you’re in the middle of a site development project that still has a financing requirement, I suggest that you give me a call so we can go through your requirements together and discuss different construction development financing options that may be available to you.

Click Here To Speak With Toronto Mortgage Broker Joe Walsh For A Free Assessment Of Your Commercial Site Development Loan Financing Options

The post Commercial Site Development Financing first appeared on Toronto Mortgage Broker.

We arrange land servicing loans for our clients in Toronto, the Greater Toronto Area, and parts of Southwestern Ontario.

While there is a considerable list of items that a lender for land servicing will focus in on, the primary areas of initial interest are the current fair market value of the land and the exit strategy that will drive repayment of the loan.

With respect to market value, its not uncommon for a particular development to be in the middle of a planning process with either a draft plan of subdivision in place or something that would resemble the same.

In these situations, the construction financing source is going to be looking to determine what the value of the land is today in the current state of planning, what the land is going to worth when final plan approval is in place, and what it will be worth upon installation of services.

For installation of services, if there are multiple phases of construction, unless all phases are going to receive land servicing at the same time, a commercial appraisal should reflect the market value of each phase individually versus providing a market value for the entire development once services are installed.

This is due to the fact that lenders will likely structure their draws to align with phases of development and want to know that at each completed phase that the property has appreciated in value sufficiently to provide the security they require to move forward with further advances.

At the other end of the equation is the exit strategy to repay the loan in the future.

All land development exit strategies are going to involve the resale of all or part of the property requiring the land servicing loan, so the strength of the exit strategy has a lot to do with who the potential buyer or buyers are, and how strongly they are contractually committed to a purchase once land servicing is completed.

Taking this one step further, in situations where there a single builder prepared to acquire lots over a period of time, the financial strength of that individual company will be extremely important to any lending/funding decision.

While not automatically the case, more arranged buyers or conditional sales to financially strong buyers, presents a stronger, lower risk exit strategy to potential lenders.

Once again, there are many other aspects of the development that a lender will focus in on, but if the market value and exit strategy cannot support the deal, the other factors will not make much difference.

If you require a land servicing loan, I suggest that you give me a call so we can go through your requirements together and discuss potential land servicing loan options available to you.

Click Here To Speak With Toronto Mortgage Broker Joe Walsh For A Free Assessment Of Your Land Servicing Loans Options

The post Land Servicing Loans first appeared on Toronto Mortgage Broker.

Land development refinancing typically occurs when a project has completed the initial planning stage and requires incremental capital to develop and service all or part of the development, or when the term is up on an existing mortgage and the lender is no longer interested in keeping their funds in the project.

The initial mortgage that is in place may have been a land loan to help acquire the property, or a mortgage acquired post acquisition where funds were used to help fund the planning work required to get all the necessary approvals and zoning changes required to move the project forward.

If the land development refinancing is at the stage where construction development work is going to begin or continue, then the sources of financing that will consider this type of opportunity will be looking very closely at the property owner or developers cash development plan as well as their exit strategy to repay the debt.

From a cash investment point of view, institutional lenders can vary in terms of their interest in funding both hard costs and soft costs. Its not uncommon for the lower cost forms of construction financing to only finance a percentage of the hard costs, requiring the developer or property owner to fund part of the hard costs and 100% of the soft costs as the work is completed.

The exit strategy is also going to be important and its not uncommon for all forms of land development refinancing sources to want to see a significant number of pre sales before they will be prepared to fund a particular project.

Its not uncommon for a development property to appreciate considerably in value once zoning milestones and site plan approvals have been acheived.

However, in order to leverage the incremental market value in the land, the combination of cash investment in the project to date as well as incremental cash to invest and a solid exit strategy are still going to be important aspects of getting land development refinancing.

This is why its important to start working with potential development refinancing sources early on in the process so you can make sure to structure both your cash flow and business model in a fashion that will most likely meet with lender requirements.

Otherwise, land development projects that have a lot of potential can still have a hard time attracting capital due to their inability to sufficiently cover off lender risk.

If you in the planning stages of land development project, or require land development refinancing for a project you are currently in the middle of completing development, I suggest that you give me a call so we go through your requirements together and discuss potential land development refinancing options that may be available to you.

Click Here To Speak Directly To Toronto Mortgage Broker Joe Walsh For A Free Assessment Of Your Land Development Refinancing Options

The post Land Development Refinancing first appeared on Toronto Mortgage Broker.

Land development financing either for a subdivision or site development work prior to building construction can be considerably harder to locate and secure at times compared to conventional construction financing.

The main reason for this is the amount of variable that are associated with land development work as compared to building construction that is being performed under a building permit.

With land development financing, the magnitude of risk is much higher due to the unknowns associated with moving earth and working in the under ground. More things can go wrong and/or will take more funds to complete than budgeted. And unplanned items can also crop up that have to be dealt with.

Needless to say, there is a considerable amount of skill required to manage land development projects which is also why builder or developer experience tends to be the first main criteria considered by most sources of land development loans.

And experience can relate to a number of things such as 1) the number of projects the land developer has worked on of similar size and scope to the one requiring financing, 2) the degree of success they have had completing the project within the regulatory requirements and budget, 3) the amount of financial success or failure they have encountered from past projects, and 4) the level of customer service they have extended to those they have sold developed property to.

Outside of developer experience, there are many other critical elements that a construction lender will look at when considering land development financing including the amount of pre-sales that have been made, the source of the budgeting estimates, the amount of equity invested in the project, and the overall timelines and details for both completing the work and reaching the planned point of exit just to name a few.

Also, depending on how the business model for a given project is structured, it may not suit the lending/funding requirements of certain lenders so its going to be important to understand who in particular will be interested in a deal, or how the deal will have to be structured or altered to meet the sources of funding that are available to the developer.

The best way to land development financing is to work through an experienced construction mortgage broker who has access to a broad cross section of commercial mortgage lenders that will consider these types of projections.

If you are in the early planning stages of a land development project, or in the middle of an ongoing project, I suggest that you give me a call so we can go through your requirements together and discuss different land development financing options available to you.

Click Here To Speak With Toronto Mortgage Broker Joe Walsh For A Free Assessment Of Your Land Development Financing Options

The post Land Development Financing Versus Building Construction Financing first appeared on Toronto Mortgage Broker.

Subdivision development financing is arguably the toughest form of construction financing that there is to arrange.

The main reason being is that there can be an enormous amount of requirements and moving parts where if even one cog in the wheel starts to stick, the whole project can become delayed or even collapse.

Compare this to construction financing where a building permit is issued by the governing body responsible for building requirements on the property and development financing becomes a whole different kettle of fish.

In many cases, subdivision development financing is not provided by banks or institutional lenders either. This is largely because the projects cannot provide cash flow debt servicing for large periods of time which is viewed to be a higher risk lending scenario and as a result, does not tend to meet the risk requirements of front line branded lenders.

To provide subdivision development financing, the lending source has to understand the business and have the ability to assess the status of a given project and be able to determine if a deal can be structured that will meet the lending/funding requirements of the organization.

Because of the amount of detail that can go into a development, a non experienced lender or non specialized lender can have a hard time wrapping their head around the deal and typically a confused mind always says no, so its going to be important to be working with someone who knows their way around subdivision development financing.

Aside from the requirement complexity, a suitable lender is going to be focused in on the capital contribution made to the project by the developer or developer group as well as the exit strategy for selling off the development and repaying the construction development mortgage.

Many times, subdivision developers will either sell off the developed lots to builders, or partly sell off lots and partly build out lots themselves.

In either case, the strength of any sale arrangement, including the financial stability of the buyer or buyers is going to be key to any lender that will consider providing subdivision development loans or mortgages.

From an owner or developer financial contribution stand point, the more funds invested in the project by the owner or owners, the stronger the likelihood of acquiring development financing as well.

There is no question that as planning milestones are met that the value of the property goes up in value and over a period of time, the completed regulatory work can add considerable market value to the real estate.

But relying heavily on sweat equity can also limit the number of potential lending suitors as there is no replacement in the risk assessment model for the investment of hard cash.

Developments that are in outlying areas are also going to be more challenging to finance as compared to those in major centers.  But if the lot absorption rates are reasonable and the project timeline not extending past two or three years, then the probability of subdivision development financing being available to your project is going to be a lot higher.

If you have a subdivision development project that you are planning or are in the middle of where development financing will be required at one or more stages of the project, then I suggest that you give me a call so we can discuss your project in sufficient detail and see what subdivision development financing options are available to you.

Click Here To Speak With Toronto Mortgage Broker Joe Walsh

The post Subdivision Development Financing first appeared on Toronto Mortgage Broker.