Project Finance

[orei]

I have a brief question pertaining to development financing.



Hypothetical situation:

1) I have a $10M project under consideration. Purchase of land/existing building is $6M and construction budget is $4M. The project is to take 1 year to complete.

2) I have $3M to invest, the remaining $7M must be financed.

3) The bulk of the construction costs occur during the last 4 months of the timeline.



Will the project be required to carry the interest on the total $7M over the whole year? Or can financing be arranged where interest is only paid on money drawn from the $7M fund?



Thoughts, opinion, and insight welcome! Much appreciated.

 

[Thomas Beyer]

Money is available by MICs. Here's four large firms I know: Firm Capital, Trez Capital, Carevest and Romspen. There may be others who can lend $7M.



Expect to pay about 2% to 3% upfront and 10-12%/year, added usually as a balloon on sale or re-fi.



So, on $7M you pay $140,000 to $200,000 upfront and $7.5M to $8.0M on exit, depending on draw schedule and length of time needed



Expect to sign a personal guarantee which ties up all your other assets ... after a lengthy check of ability to execute such a venture.

Also expect to show some healthy pre-sales if condo project. Tougher to finance rental construction, but doable.



Talk to the four firms, and see what transpires.