Securing Financing For Construction Site Development
“For Builders and Land Developers Seeking Construction Site Development Financing, The Exit Strategy Is All Important”
As we move out of March, 2010, I can slowly see several Ontario residential development projects coming back to life where there wasn’t much going on the last two years due to the economic slow down.
When you look at the province overall, there is a glut of projects that are trying to start or restart up their efforts, creating a potential for near term over supply in the market as its debatable how quickly buyer demand will return to more normal levels.
So when a builder or developer is seeking construction financing for site development, here are a couple of things to keep in mind.
First, construction financing on average is more difficult to secure overall for development projects as lenders are closely studying the local markets and the expected demand that drives the repayment of the construction development mortgage.
Typically, as sites are developed and sold, a portion of the sale proceeds are paid to the lender so that each site’s title can be provided to the new owners free and clear.
However, if the prospect of sales is viewed to be too low, the reselling period will take longer, resulting in slower repayment of the mortgage financing which leads to point number two.
In the current market dynamics, both private and institutional lenders are looking more closely at the history of lot sales for related developments as well as the pre-sales for the existing development project seeking financing, and the historical resume of the developer. If there are a large number of lots in the development and the builder or developer plans to build out within their own group of companies, there will likely be less interest in the deal by construction mortgage lenders unless there is strong enough near term evidence of market development efforts that can generate the sales required in the time the construction mortgage needs to be repaid.
When you’re getting into developments larger than 10 or 20 lots, if your selling strategy includes selling to other builders and focusing your own sale and build out process on a smaller percentage of the lots, you’ve just created a more viable exit strategy for prospective construction loan lenders which will attract more financing interest in your project.
There are other marketing strategies you could pursue. Just remember that the key to getting the capital you require is presenting a marketing plan that a lender believes will move the lots in the current market.
If you’re seek construction financing for site development, site acquisition, or building construction, I suggest you give me a call so I can quickly assess your situation and provide relevant options for your consideration.
Click Here To Speak With Construction Mortgage Broker Joe Walsh
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