Andrews: Construction financing coming back
I've been hearing a good bit lately from lenders who say they're taking a new look at commercial construction financing, a welcome sign of things continuing to firm up in our market. That's the good news. The other news (is it bad or just not as good?) is that lenders are being very selective about the projects they're considering, meaning many proposed are not making the cut. If you want your project to get financing, here are a few tips I've picked up from conversations with lenders:
• Existing customers with an established track record for the type of property being considered are at the top of the list;
• Strong financial statements with lots of liquidity are a must;
• Speculative developers need not apply, as lenders will require significant pre-leasing for office and retail deals;
• "Skin in the game" in the form of real cash equity—not mere sweat equity or potentially inflated land values—is required.
And don't expect lenders to welcome commercial construction deals with open arms, either. Many are still dealing with their "300/100" concentrations of real estate loans in general and development loans in particular, and will tell you up front that they don't have room in their risk buckets at this time. But for those lenders with capacity on their books and experienced lending staff, commercial construction is definitely coming back.
(Brian Andrews is a certified mortgage banker specializing in the financing of commercial real estate. His business is Andrews Commercial Real Estate Services, and he can be reached at email@example.com.)
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