Acquisition and Development Loans and Commercial Construction Financing

Acquisition and Development Loans

Acquisition and development loans for commercial properties are vital to the success of the developer. Acquisition and development loans combine two processes into one by enabling the commercial developer to purchase the property and gain funding for development and construction at the same time. The benefits of combining the two loans into one acquisition and development loan are numerous because it not only streamlines the process but also, and more importantly, prevents the developer from being left with raw land and no funds to complete the project.

Simply put, the "acquisition part" of the acquisition and development loans equation relates to the purchase of the property. The "development part" of an acquisition and development loan relates to completing the infrastructure of  the raw land which includes installing roadways, sewers, water, the electrical grid, utilities, telecommunications, etc., required in order to build and sustain structures on the property.

Acquisition and development loans are key to getting a project off the ground and moving towards the construction stage. The impact of the project on the community once a developer "breaks ground" to commence with the infrastructure improvements is significant when you consider the effect on the local economy through the creation of jobs in the immediate area.  Moreover, the progress does not go unnoticed and potential buyers and prospective tenants for the completed property tend to keep a close eye on the project with the intention of buying or leasing the finished product which contributes to the overall success of the development.

The term "commercial construction" is related to the vertical creation of buildings on commercially zoned property to be used for business purposes. This can be an office building, retail center, industrial building, shopping complexes, hotels, motels, multi-family apartments and even manufacturing facilities. Commercial construction financing supports the developer as he is moving along with the vertical construction of the property and it is used to finance the building improvements on the real property above the land. These improvements are typically the most appealing and most valuable aspect of the project and usually, most of the completed property value lies within these improvements.

We all know that without these acquisition and development loans and construction financing options for commercial properties it would usually require large capital investments from the developer and make the process much more difficult. Acquisition development loans and construction financing for larger developments begin in the $10-$20 million range and go to go up into the hundreds of millions of dollars.

Acquisition and development loans and commercial construction financing can be arranged for a developer in several ways depending upon timing and the speed in which the project will continue:

•Acquisition and Development Loans – To purchase raw land and complete the infrastructure development.
•Construction Mini-Perm – Construction loan with a 3 to 5 year loan term.
•Construction Loan with Take-out – Construction with pre-arranged exit loan or take out loan.
•Bridge Loan – A short term (1-3 year), interim financing or project loan.
•Joint Venture – A liquid financial partner in the development of real estate.
•Real Estate Purchase Loan – Lending for the purchase of commercial property.

Even though it's ideal to try to combine the acquisition and development loans as one, it is much more difficult in this day and age for a lender to commit to funding both, the acquisition and development stages of the project.  More and more lenders are turning away the acquisition and development loans and now require a significant amount of equity in the land and verifiable, liquid capital invested into the project prior to receiving a development or construction loan.

In order to find the best acquisition and development loans and commercial construction financing, you should seek out an expert in the area of commercial acquisition and development loans and financing expert a "consultant," to assess your specific needs and assess your situation.

A specialist for acquisition and development loans can review your financing needs and structure the proper financing package that will have the greatest potential for a successful funding.  Some of the areas of concern and attention that your consultant for acquisition and development loans will review and give careful consideration are:

• The subject collateral property
• Loan purpose
• As-Is Loan to Value
• As Completed Loan to Value
• Repayment capacity
• Borrower's Interest reserve requirements
• Borrower's equity in the project
• Borrower's liquidity
• Borrower's experience
• Exit strategy

When the acquisition and development loan consultant has reviewed this information he can work on the proper structure, preparation and presentation of your request for acquisition and development loans to potential lenders.  Once the lender is satisfied with the information assembled by the consultant then proposed loan terms could be expected shortly thereafter.

Ray Wateska has been in the commercial finance business since 1993 and offers both, acquisition and development project consulting services and commercial mortgage loan placement services through his licensed companies for projects and properties located the US, Mexico and the Caribbean. Ray and his companies can be an asset to you when seeking acquisition and development loans and construction project financing advice and funding.