Land Development Refinancing
“Land Development Refinancing Sources Will Depend On Cash In The Deal And Strength Of Repayment Strategy”
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.
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