Construction Loans

A short-term senior debt loan typically used to purchase real estate and build a new structure, or add major additions to an existing structure. Funds may be used toward property acquisition, professional service fees, construction hard costs, and all costs leading up to initial lease-up of the property. Favorable construction loans will offer interest-only payments, allowing the developer to have low monthly payments during periods where the property is not producing income.

Situations Suited to Construction Loans:

  • Real Estate Developer has a piece of land under contract for $1 million, and has all approvals to build a new office building with all construction-related costs estimated at $4 million. The developer may seek a construction loan for 80% of the total $5 million cost, with interest-only payments for a term of 24 months. At the end of the 24 months, the developer has a finished building with leases in place, and applies for a permanent loan to pay back the balance of the construction loan.
  • An owner of a Trucking company also owns the industrial flex building where his business operates out of. He decides to add two more bays to the existing loading dock, and takes out a construction loan of $1 million to pay for the addition. The new addition increases the rentable square footage of the property, which increases the rental amount paid by the Trucking company to the owner. This has increased the overall value of the real estate, and the owner is now able to refinance or sell the entire property at the higher valuation, paying back the construction loan, any other debts on the property, and reap any additional remaining capital as profit.