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.
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