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



  • 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 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 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 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 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.

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