FINANCING SOLUTIONS

Fannie Mae, Freddie Mac, Sonyma, HUD, Conventional, Life Company, CMBS, Pension Fund

TYPES OF FINANCING

Construction

Construction financing is typically a floating rate loan covering construction and development costs, secured by a mortgage on the property financed.
Funds are advanced at specific stages of construction with a portion held back until completion of the project.
Construction financing is paid off from the proceeds of a permanent mortgage.
Loans are typically (up to) 24 months in duration and advanced based on the lesser of 85% of total project costs or 80% of as-stabilized value.

Permanent

Permanent financings consist of long term fixed or floating rate loans.
Loan terms and amortizations range from three to thirty years and are non-recourse to the borrower.
Loan to value ratios are typically 80%.

Forward Commitment

Forward Commitments are agreements by lenders to provide permanent financing on a project that will not be completed until some time in the future.
The commitment, spelled out in a binding contract, may expire if unexercised by a certain date.
Forward Commitments will typically range from 12 – 24 months with the interest rate locked up front.

Construction-to-Permanent

Construction-to-permanent loans are a method of financing in which a loan automatically converts from construction to a permanent loan.
Construction-to-Permanent financing generally has fewer closing fees than separate financing facilities.
Some institutions allow for the permanent rate to be fixed prior to project completion.
Loans are advanced at the lesser of 85% of project costs or 80% of value with no negative arbitrage.
The interest rate is locked upfront and the loan becomes non-recourse upon conversion to the permanent loan.

Bridge

Bridge financing is a short-term loan that is used until a borrower secures permanent financing or removes an existing obligation.
This type of financing allows the user to meet current obligations by providing immediate cash flow during a transition.
The loans are short-term with relatively high interest rates and are backed by some form of collateral such as real estate or inventory.

Mezzanine

Mezzanine financing fills the gap between a traditional first mortgage and available equity.
Total loan proceeds, when combined with the first mortgage, typically do not exceed a 90% loan to value ratio.
Loans typically range from one to three years.

Credit Tenant Lease

Credit Tenant Lease financing is a method of leveraging a real estate project based upon the credit strength of the underlying tenant.
The landlord borrows money to finance the property and pledges as security the rents to be received from the tenant.
The financing is based upon the tenant’s credit rating and can allow for up to 100% financing and 1.0x debt service coverage ratios.
Usually, the financing is structured as non-recourse debt and the lease is triple net in nature.

Joint Venture Equity

Joint Venture Equity includes the selling of ownership interest in a project to an investor.
An equity offering is usually chosen where cash flows in the early stages of a project are uncertain and the developer requires flexibility regarding capitalization.
As partial owners, the investor profits as the company profits.
This provides the entrepreneur with an advantage over debt because there is no need to make debt service payments during the early stages of a project.

Letters of Credit

Letters of Credit are issued by a bank authorizing the bearer to draw a stated amount of money from the issuing bank, its branches, or other associated banks or agencies.
Letters of credit are required by many towns on development projects to be used as collateral until work is complete.
Additionally, many banks will hold a letter of credit as a temporary replacement for real estate collateral.
The borrower is typically charged 1% to 2% per annum based on the amount of the letter of credit.

Lines of Credit

Lines of Credit allow an investor the ability to borrow, pay down, and re-borrow money to fund seasonal or short term credit needs.
A client can either withdraw the credit amount at one time or make a number of withdrawals during the period of time.
Builders utilize lines of credit to pay for construction costs. The line is repaid by the builder following closing.
Lending institutions have final approval authority on all costs paid through the line of credit.

HUD Loans

HUD promotes housing development in the United States through direct loans, mortgage insurance and guarantees.
HUD-assisted programs finance the construction of subsidized public housing and rehabilitation of single family and multifamily housing.