HOW TO SUCCESSFULLY APPROACH YOUR CONSTRUCTION LOAN REQUEST

All too often our firm is called in to handle a construction loan request by borrowers with too little time at their disposal to get the maximum benefit from the loan-shopping process. For one reason or another, we are often called upon to enter the fray when time is short and the stakes are high.

Much more so than with an apartment building loan, the added complexities of properly structuring a construction or renovation loan takes some time, adequate information and plenty of finesse. To the greatest degree possible we seek to give our clients and their professional advisers adequate time to compare alternative solutions and pick the best loan structure to meet their needs. If there's only one month to go from the time a commercial mortgage broker is engaged until a time of the essence closing, the borrowers choices must clearly be limited to those lenders who have, in the past, clearly demonstrated their ability to quote aggressively and then deliver reliably.

The circumstances can be, (and frequently are), further complicated by the absence of a well thought-out and documented construction budget, which enumerates both hard and soft costs, along with a set of approved plans. Yes, it is possible to initially move the deal forward by estimating $X per square foot and then filling in the blanks soon afterward (by supplying the final construction budget), but that approach is difficult for the lender, and counterproductive for the borrower, as it essentially gives a lender many ways to alter or withdraw from the deal. The earlier a borrower calls in the Cavalry (i.e., a good mortgage broker), the more smoothly the deal will go, simply because there will be more time to adequately prepare a full presentation, sort through lender responses and have enough time to negotiate and optimize the available offers.

Especially with high-dollar-per-square-foot Manhattan construction or renovation projects, where even a small deal might require $5,000,000 to $10,000,000 in financing, lenders need to see a very compelling cast of characters with directly relevant experience, significant liquidity and net worth in order to get excited about a project. The overall team must make sense, and all the major areas of expertise must be represented.

At Winter & Company, it's not unusual for us to see a loan request for the first time a month or two after the borrower has signed a non-contingent contract. Often the borrower simply assumes that what has worked in the past will work again, but now finds only lukewarm interest from the one or two banks they've worked with in the past. This being a dynamic, ever-changing marketplace, the players are always in flux. Plus, of course, an overwhelmed lender with a jam-packed pipeline simply cannot react as quickly or as aggressively as a hungry, well-staffed competitor seeking to add market share and willing to compromise on spreads and profit margins. Things are always changing in the construction-lending marketplace, and it's the broker's job to help the borrower find the right lender with the most appropriate loan structure, at the right time.

As with many endeavors, it all boils down to being prepared and controlling the timing to benefit your project to the greatest degree. Please feel free to download a list of the items typically needed by most lenders by returning to our home page, clicking on CHECKLISTS and then CONSTRUCTION. The sooner you begin to assemble the necessary documentation, the smoother your next project is likely to go.

Gregg Winter, President

© 2008. Gregg Winter. All Rights Reserved.
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