Commercial Real Estate Finance Companies - Continued...

Continued from previous page...

Since most commercial real estate finance companies focus on providing debt capitalization, the theory holds that there will be a level of debt capital available on a non-recourse basis once a certain loan-to-cost ratio for the construction loan is reached.  Obviously, it is unrealistic to assume every lender will react this way - far from it.  Many lenders refuse to entertain any loan proposal that does not include personal recourse, joint and several, for all parties. 

You must avoid these lenders because they are a waste of your time, money and will only try your patience.

For instance, the average aggregate loan-to-cost ratio for a HUD-insured multifamily housing loan is to be found within a range of 82% to 86%.  All commercial mortgage lenders in the multifamily asset class are aware of this and may be willing to provide a loan that is not HUD-insured if the loan-to-cost ratio was down to around 75% or 70%.

It doesn't matter what the level is, what matters is that the developer can get his capital up off the table; that will only happen when there is a non-recourse loan and significant additional capital.  The developer's job is to husband his/her financial resources for the sole purpose of raising additional equity capital, thus leveraging off of the original developer seed capital.

Keep these in mind.  Stay focused and talk to Rainmaker when you are ready to make your move...