Private Lending / Institutional to Fund a Project

RichmondCA wrote: ↑ I've been down this road before, there are a lot of variables at play, there is no silver bullet unless you are wealthy.

That said, where is the property, what are you building, is it paid off, can you secure your construction loan against the land?

If not, what is your net worth, what are your assets, are you willing to provide a personal guarantee on the loan by giving your assets as collateral?

Lastly, thanks for the laugh (re: 99.7% statistical confidence level of probability), you had me there.

Good luck, also I am not sure what you mean by "Builder has been chosen and signed off on", no builder will be "signed off" let alone will they give you time slot allocation without a deposit which you don't seem to have yet. You maybe have chosen a builder, but unless you are fully funded they aren't accountable to you for any sort of timelines you've discussed until you have a deposit and he has actually allocated time slots to you. Even with a deposit, managing to those timelines is extremely difficult so I suggest reassessing your timelines or understanding that your project timeline is subject to you actually committing the builder and that happens when you have a contract with legal recourse for meeting timelines. Until then this is all pie in the sky stuff.

Canuck2017 wrote: ↑ Haha was hoping you would reply after reading the thread on the developer post. Basically, what are the requirements, the structures and the mechanics of bridge loans provided by big banks and retail so where CoC is lowest (RBC, BMO, Scotia, CIBC, etc.). They all openly advertise construction and builder loans, I just find it impossible to figure out what their requirements are. Which is why private lenders usually get involved here. Again, let's set aside all the details of the plans the builder, build costs, the city red tape, permits, etc. and let's assume, all that is done. The soft costs have been paid for out of pocket, plans have been made, the 12 back and forth and revisions made with the city borough planning department is done and finalized, etc.

I have a nice 50 page brief in my hand, now I need the funds for the project. The conversation can't always be "but have you accounted for ___ delays" or this challenge or that hurdle, like where does the real conversation begin for financing. In my case, it's as I mentioned:

--> property is semi-commercial duplex, in highly desired area (recession and pandemic proof, lowest residential vacancy rates ever recorded, while all the overpriced condos sold as short term rental investments market collapsed without travel) in Montreal.

--> biggest challenge of the area has notoriously been the city's pushback and red tape. For the most part, many projects have always sought to amend the bylaws and make exemption requests for things such as density and setback modifications from 3 stories to 4 stories, or for demolition permits which have notoriously been refused in this area. The focus has always been based around patrimony and heritage and theres 1000 keyboard warriors ready to go vote against your permit requests during the referendum process because they don't want to see another building get transformed. Now, as of the last year highly favourable changes to the bylaws have happened. In the last 6 months, the new borough council mayor and his team have approved about half a dozen demolition permits and after being taken to court and sued by landlords, investors and developers for years and interventions of the ombudsman of the city, etc. they finally agreed to speed up their permit process and urban planning consultations as to not delay projects and waste people's time and money. So not only are they now open to more demolitions, they're expediting permits quickly because there is a dire need for new housing units especially if they want to have numbers to back their efforts on the issue, + they made important changes to what they are allowing in terms of architectural heritage structural integrity and amended the rules to just a couple.

--> in my case, the building is grandfathered into the most ideal setbacks and zoning, it can be built up to 4-stories, 100% build to lot size, 16m height, + the current density sits at 55% built, so there's 45% of undeveloped portion

--> these projects, when demolitions aren't involved are considered transformation projects which include expansionary construction (floors, extended back, redone facades, etc.)

--> rent is going for 2.25-2.50$ on new built no elevator and about 3.00$ on new with elevator in the area. The units get taken off as quickly as they get listed, as mentioned low vacancy rates and recession proof since this has been a constant thing for multiple decades now, the "original" hip and trendy area to live in

--> extra appeal, it's the only property left out of a handful in a 3km radius that still has any sort of development capabilities, and all the remaining ones are actually built to their lot size, just have options for extra floors or mezannines

The project goal would be to develop the property to include a ground floor commercial unit as required by zoning and which is totally fair and needed, and 3 floors of residential units. Multiple layouts exist, just a question of which unit size will be used to target which group of renters. In similar projects currently being developed or previously completed, there's been either a division in a way where the 2nd floor has 4 units (studios) and then 3rd+4th floor have 2-floor units with mezzanine, I've seen some that do 3, 3 and 2 (which is what I would think would be the ideal division) and I'm currently working on drafts now with an architect.

--> lot size is 3,100 sqft

--> permit applications and plan approval process, which used to be the biggest challenge, aren't a walk in the park, but they're not impossible, it's not an area that people avoid for those reasons at least like is the case in other areas

As is, the property can sell for 1.3-1.5 given the market and based off future CFs. The property is recently vacant for the first time in a decade, thus the considerations for what can be done to take advantage of the opportunity is being discussed. I've considered designing and dividing the ground floor commercial space in a way as to attract small teams or individuals looking to embrace a co-working / shared environment which does really well in the area, and continuing to rent the residential to students by rooms, etc. but ultimately this project is one I'm considering it, and I'm doing a lot of discovery and due diligence tasks right now at my expense, to check for structural and foundational issues, drafting prelim pans, etc.

But the financing is where I have more serious questions on. Pitching the project to a private bank or group of investors is not difficult for me, as long as I have a solid pitchbook and good project brief and with transparent and very conservative projections and expectations, I'll be able to either find someone for a JV or find someone to fund the project and give me the bridge loan / use mezzanine financing.

I'd like to know how a layman, walks into a bank and sits with the commercial mortgage broker and says here, this is my project, this is how much I need to fund the project, I am totally fine with you doing it in a drawback structure where payments are issued upon milestone completion and I'm ok with you controlling supplier payments. I'm not selling you off any smoke and mirrors and not trying to conduct anything shady. How can you help me.

--> the current mortgage on the property is about 250k
--> most recent bank appraisal I paid for has the value at 1,25$
--> it is my understanding that commercial mortgages cap at 65% (although as mentioned I've been hearing talks of 80% and such from everyone pretending they can approve anyone)
--> which means there's about 550k of equity left on the building

The estimated build costs and hard costs sit at a healthy 1.7M. It is my understanding that both banks and private lenders require 20% for a construction bridge loan. Can the remaining equity on the property be used as the down payment to put up against the 20%? If not, how much is needed. What do I need to show in terms of other assets, cash or cash equivalents. If I had the 1.7M, I wouldn't need to go asking for it, so what's the typical requirement for them to lend off? 35%, 50%? No one can give me a straight answer lol.

Like I said, I know with a final draft and project brief in hand, I can make a few phone calls and have a meeting at Otera, Fiera or CDPQ and secure my lending, but someone who doesn't necessarily have contacts in PE or commercial lending and capital markets, and wants to leverage the normal commercial mortgage route, what is he to do?

If I can't go into RBC and say look there's 550k of equity left, that I can use to put against the 1.7M I need to build that you can pay me in 3 draws, then do I go to a private banker and get a secured mortgage that pays off the current balance + gives me the extra equity to then go use against the construction loan? What's the simplest and easiest way and what are the requirements for it without having to use any mezzanine financing or go raise funds directly from capital markets divisions like Fiera's construction branch, etc.

edit: --> I even saw you mentioned the affordable housing grants offered right now, I looked into those as well and they finance up to 100%, subject to rents being capped at 30% of the median household income and for a period of 10 years, for 3 years interest free. I asked a few builders I know and they told me right away to avoid those programs because of the level of scrutiny on the due diligence and the way payments are controlled and made, which if you're going by the book and not looking to shave and cut corners (which I know is synonymous with the industry and likely the only way to get things done and still make profit) shouldn't be a problem. But those programs remind me of procurement contracts, where they slam you with 1000 page documents of legal jargon making it impossible to even apply without paying $$$$$ to hire the consultant to help you write the proposal for you.

RichmondCA wrote: ↑ I think based on skimming what he wrote, in his mind the entire thing revolves around getting the lowest financing cost. A bit of a moot point when that is probably the least important piece of the equation.

IrfanP53614 wrote: ↑ First of all you need building plans/permits before a bank would even talk to you or even a private lender. Banks are usually do not like funding smaller projects and end up costing almost the same as private lenders once you factor in all the costs. The draw downs are on a work completion basis. But they do disburse funds through their own lawyer and estimator every time they give out the money. This adds to your cost.

You did mention that you got the appraisal for $1.25 mil why cant you just refinance the property and get the permits and what not. You will still have enough cash left in your account to approach a private lender to finance the shortfall. Am i missing something here?

Walking into a bank for a construction load is very difficult and most builders/companies avoid banks for lending for construction costs. Also you will need a proper permits, business proposal even for private lending and a payment schedule by work completed to be able to get any kinds of lending even private lending.

RichmondCA wrote: ↑ I think based on skimming what he wrote, in his mind the entire thing revolves around getting the lowest financing cost. A bit of a moot point when that is probably the least important piece of the equation.

StatsGuy wrote: ↑ yup, first step will be to a report from a cost consultant, and then tender and see what prices he's actually getting and compare to his proforma. I've seen tender prices go 20% above cost consultant report easily in the crazy market we're in