How to Get Your Large Construction Loan Approved
Boulder Equity Partners LLC can fund very large construction loan requests — $40MM minimum with no maximum limit. And we are not limited to multifamily. We can fund most asset classes.
But these large construction loans are complex. Here’s how to best position your loan request for approval.
How This Large Construction Funding Works
We fund 75% LTC, with the remaining 25% provided either by C-PACE, borrower cash, mezzanine loan, bridge loan, limited partner contribution, or any combination. Those remaining contributions, which must be secured prior to funding, are placed in a custodial account at project inception.
If C-PACE is utilized, these funds stay in place for the long term. If C-PACE is not leveraged and other cash contribution vehicles are utilized instead, they can be paid off within 6-18 months of inception as part of funding, arriving at 100% LTC.
Most borrowers will have a prior investment and equity in the proposed construction project. With this program, we are starting at “ground zero” together. This means the 25% cash contribution starts at the inception of the construction loan.
For example, let’s assume a developer has spent $15MM to purchase the land and associated development and entitlement costs, with the land now worth an estimated $25MM, and $10MM owed on the land. The full construction budget, including horizontal, vertical, and paying off the land loan, is $100MM.
With our ground-zero perspective, we are looking at the budget of $100MM. In this example, we will fund $75MM. The $10MM land loan in this example can be paid as part of funding.
The sponsor will bring $25MM to the table, either through C-PACE, cash, mezzanine, bridge, limited partners, etc. That $25MM will be held in a custodial account at funding inception. If it is C-PACE, it will stay with the property for the long term, after construction is complete and the property is stabilized. Otherwise, it will be paid off within the term of the loan — typically 6-18 months if inception— returning that cash to the investors.
Stress-Test Analysis for Large Construction Loans
One of the first exercises our team will undertake is a stress-test analysis. We begin with the end, determining how the finished project will be underwritten in the marketplace. Can the construction loan be refinanced within agency-specific parameters?
To make that determination, we will perform a loan-to-value analysis. The construction loan payoff should be no more than 65% of the stabilized value, maximum.
Next, we’ll look at the stabilized debt service coverage ratio — how the project will meet these objectives.
If C-PACE is utilized for the 25% portion of the contribution, then our underwriting parameters will be focused on our 75% construction loan portion. But if we are ultimately funding 100% LTC, there will be heightened focus on the LTV and DSCR perspectives at the successful completion and stabilization of the project.
The loan term can extend up to four years, allowing time in the marketplace to achieve these metrics.
How to Position Your Construction Loan Request
At Boulder Equity Partners LLC, we are keenly interested in the project itself. What is it that makes this construction project exciting? What is the demonstrated demand in the marketplace? How far along is the project? If it is build-to-lease multifamily, what kind of pre-leasing has been demonstrated? If it is a build-to-sell, what are the presales?
If not multifamily, is there a credit tenant ready to move in on Day One? Is an LOI in place? Can the sponsor prove pent-up demand for the project so that the property will be quickly stabilized and cash-flowing? Is there strong support from the local municipality?
Hyperbole and flash won’t cut it. Instead, it is crucial to sell our committee on the unquestioned future success of the project. Viability is everything.
Construction Loan Requests: Who’s Coming to the Table?
Another crucial component to a successful construction loan request is introducing the sponsor, management, and all equity partners. This due diligence is extensive, requiring executive summaries and bios on all parties, LOIs from all corporate entities, and financial documentation demonstrating the wherewithal to support the project.
This is a difficult hurdle to clear, so include any entities, both corporate and municipal, you are partnering with that contribute significant value — anything that translates into risk reduction and underscores the successful completion of your project to the marketplace.
Large construction loan requests have many moving parts and require considerable time and effort to evaluate and approve. Sponsors and brokers can speed this process by providing all the information needed upfront. The more boxes that are checked, the more quickly the loan request can proceed, and the more likely the funding request will be successful.
Boulder Equity Partners LLC is a nationwide lender for commercial real estate offering a wide range of loan programs including construction loans, perm loans, and bridge loans that can be migrated to perm loans.
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