Board Topic: New Construction of Townhomes - help?
Click here to view this topic in its original format
LoanUniverse Community > General Chat >

New Construction of Townhomes - help?

Posted by: TJ May 9 2004, 02:03 PM
I appreciate all the knowledge on this forum and hope some experienced people can advise.

I have an opportunity to buy 4 acres of land for $1.5m. The seller is not flexible and wants the total amount. We have provided her with $50k as earnest money and will be paying an enginner approx $7k to do feasibility, soil, etc. tests.

Currently it is zoned R1. Ideally, we'd like to build 60 homes on it, get it rezoned as R3. The general contractor quoted that the approximate price would be about $9m to build this out. In addition, we have interviews with architects, attorneys, and loan officers lined up. We plan on selling each unit for 350-420k at minimum. The market is booming.

We found out that an "a&d" loan would require 50% LTV (need 750k to close). How can we make this work and do the numbers make sense?

I found out a construction loan alone could be 90% LTV.. but in our case, that would be 10% DP which would still be 90k. I'd rather go for the A&D loan and put up 750k for the land.

In addition, I am fairly green in this field. I have flipped several homes in the past (fixer uppers, etc) 2-3 per year for the past 3 years and have made excellent income as a software engineer ($100k+ for the past 4 years) and am now getting into commercial.

Specific questions I have:
should my team get a land loan, acquire the land, then work on the construction loan separately? Or obtain an "A&D" loan for both? If just getting a land loan, what do lenders typically want as for LTV? Once acquired, how about the construction loan - what typically LTV would they want for the construction loan?

Any help/guidance is very much appreciated.. thank you.


Posted by: loanuniverse May 9 2004, 03:53 PM
TJ:

should my team get a land loan, acquire the land, then work on the construction loan separately? I donít think you have much choice but to go after a land loan only since the zoning is not in place. Looking at this from the point of view of a lender, there are two major strikes against it. First, you are not a developer and are have no experience in it. Second, the property can not be used according to your plans until it gets rezoned.

I found out a construction loan alone could be 90% LTV.. but in our case, that would be 10% DP which would still be 90k. I'd rather go for the A&D loan and put up 750k for the land. There is something very wrong with this math. I think that if a lender requires 10% equity on a construction loan, the lender means from the total value.

If just getting a land loan, what do lenders typically want as for LTV? In this case, I think you will find most mainstream lenders coming in at 50%. That is if they are interested in doing this loan. You also have to consider that the land is valued at one price as R-1 and as another as R-3. Therefore, the value will probably be affected by this. {remember is a percentage of the lower of purchase price or appraised value}

what typically LTV would they want for the construction loan? This might be a bit more difficult to pinpoint, but I would say 75% loan-to-value and 85% loan-to-cost sounds reasonable give or take 5%.

Posted by: TJ May 12 2004, 12:51 AM
QUOTE (loanuniverse @ May 9 2004, 03:53 PM)
TJ:

should my team get a land loan, acquire the land, then work on the construction loan separately? I donít think you have much choice but to go after a land loan only since the zoning is not in place. Looking at this from the point of view of a lender, there are two major strikes against it. First, you are not a developer and are have no experience in it. Second, the property can not be used according to your plans until it gets rezoned.

I found out a construction loan alone could be 90% LTV.. but in our case, that would be 10% DP which would still be 90k. I'd rather go for the A&D loan and put up 750k for the land. There is something very wrong with this math. I think that if a lender requires 10% equity on a construction loan, the lender means from the total value.

If just getting a land loan, what do lenders typically want as for LTV? In this case, I think you will find most mainstream lenders coming in at 50%. That is if they are interested in doing this loan. You also have to consider that the land is valued at one price as R-1 and as another as R-3. Therefore, the value will probably be affected by this. {remember is a percentage of the lower of purchase price or appraised value}

what typically LTV would they want for the construction loan? This might be a bit more difficult to pinpoint, but I would say 75% loan-to-value and 85% loan-to-cost sounds reasonable give or take 5%.

Hi, thanks for your response..

1. Why do I not have a choice but to only go after a land loan? Is it because it is not R3? We can still do an R1 and build out 20 homes.. but would prefer R3. Would a bank be willing to listen to this? Or would it be better to get a land loan first, rezone, then get another loan that replaces that land loan for construction as well?

2. I have a typo - should be 900k for down payment on a $9m loan. So that would be 10%.

3. I found a local bank that stated 50% of LTV for an 'A&D' loan. How much more would an R3 typically be valued vs an R1 zoned land?

Thank you again..

Posted by: loanuniverse May 12 2004, 12:03 PM
Why do I not have a choice but to only go after a land loan?

I think you don't have a choice mostly because the way I understood your original post, the following is the situation:

- There is no construction plans, the contractor has not been chosen.

- The land is under contract, so I am guessing that there is a deadline for closing that you have to meet.

- The whole plan hinges on the rezoning, which is not in place.

- What would a lender be financing when there is no construction budget, which is derived from the plans?

- Of course, you could try to negotiate an extension from the seller if there is a deadline approaching.

I found a local bank that stated 50% of LTV for an 'A&D' loan. How much more would an R3 typically be valued vs an R1 zoned land?

The amount of the loan is tied to the cost and value of the project. 50% seems very conservative as residential construction is usually around 80% loan-to-value and 80% loan-to-cost give or take 5% either way. However {and don't take this the wrong way}, your request would certainly be turned down by most banks because of your lack of experience. I know it sounds like a catch-22 "You can't get an A&D loan without experience, and you can't get experience without one", but this is the reason why so many developers start with an established partner.

Posted by: WE DO COMMERCIAL LOANS May 18 2004, 05:37 PM
Sunset Commercial Group, LLC (NYSE: SFO) offers competitively priced short-term bridge loans for the following property types:



Multi-family Apartments (minimum 40 units)
Senior Living Centers
Warehouses
Shopping Malls or Strip Malls
Hotels
Storage Facilities
Condominiums
Office Parks


Loan sizes of $1,000,000 to $10,000,000 available at up to 65% Loan To Value (higher loan amounts available at reduced loan to value). Our interest rates may be as low as 11% and loan fees as low as 4.5%



These loans have one-year terms with interest only payments. We can close in 10 to 21 days following receipt of all required documents. The loans are asset based and require an MAI appraisal and a reasonable exit strategy.



Call today and let us know about your scenario.



Other commercial loan types available.
email

Comments are closed.