For a second time this month we provided some guidance for construction projects that are multi-phased and require creativity. Most lenders today do not want to provide construction financing for projects that are not completely pre-sold. Lenders want to know that the money they put out is covered off by sales that can repay the loan. The challenge for borrowers is that in order to pre-sell a project prior to construction the sale price ends up being less than what they want and is not as profitable as selling after the project is completed (or started). Borrower’s today believe that if they build first and sell later that they will maximize their profit. Lender’s today want them to sell first and build later resulting in potentially less profit. The creativity is required to find a point in a project where a borrower is satisfied that they can move forward without compromising profit and and lender is satisfied that they are not going to be short on equity once the project is built.
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