Condo Inventory Financing
For owners and builders that have gotten to the end of a condo development project and require additional funds before the condo registration process is complete, a condo inventory financing solution may fit the bill.
Its not unusual for a condo development project to experience a delay at the end of the construction phase in getting the project approved for condo sales.
Prior to that point, the project takes on more of a townhouse status from a lender’s point of view which can impact the amount of leverage the owner or builder can secure against the project.
And even though the actual construction is now complete, there are still going to be financing cost that need to be paid on a monthly basis to the construction financing lender and perhaps a first property mortgage that would have been used to acquire the property. In addition, there may also be some trade payable to take care of that were planned to be covered by the initial condo sales, but remain outstanding with no new cash inflows in sight.
The solution in these types of cases is what we refer to as inventory financing whereby the inventory of units where sales cannot be completed at the present time can be used to secure additional capital.
If the project qualifies for institutional financing, the construction mortgage will be paid out and incremental funds provided to a level of 65% of the completed project value.
If the construction loan was from a private source, at an interest rate likely between 10% and 14%, the refinancing will also drop the mortgage rate to 6.5% to 7.5%, creating a significant saving in financing costs.
Any commercial mortgage refinancing is going to cost money to accomplish, so the interest savings can potentially offset the costs of getting a new mortgage into place.
A mortgage for inventory financing is set up as a line of credit with interest only payments required and an open mortgage term so that the outstanding balance can be paid off at any time, making this a very effective form of bridge financing.
If you are working on a townhouse development project that is in the process of receiving condo registration and needs additional capital to keep the lights on and pay the bills, then condo inventory financing may be a good fit. For these types of scenarios, I recommend that you give me a call so I can quickly review your requirements and provide available options for your consideration.
About the Author Joe Walsh
I'm a Toronto Mortgage Broker that arranges mortgage solutions on residential and commercial real estate property. With over 30 years of mortgage financing experience, I'm able to quickly assess your financing requirements and provide relevant solutions for your immediate consideration. Joe Walsh Google+ YouTube Channel