Evaluate My Term Sheets from my Lender

[Kris Benson]

BP Team,

Our new multifamily development project was approved via the Common Council of our municipality last week. We are good to go to begin our engineering study and submission of architechtural plans. In the mean time I wanted some feedback on our term sheets provided by two lenders in the area who are interested in the project. This is my first new construction loan so I am interested in what else may be out there.....

Here is one set of terms for our new construction loan:

Lender # 1

AMOUNT: $1,935,000

PURPOSE: Construction of new apartment buildings

TERM: 12 months interest only, followed by 20 years amortized repayment.

INTEREST RATE: Prime +2% during interest only period. Permanent rate is set at time of commitment for 5 years to the 5 Year US Treasury Rate plus 3.00% (as of today would be 4.76%) or for 10 years to the 10 Year US Treasury plus 3.00% (as of today would be 5.73%). With either selection, the rate would adjust for each additional five year term to the 5 Year US Treasury plus 3.00%.

FEES: There are no commitment fees or prepayment penalties. Appraisal fee would be payable at time of commitment.

PAYMENT: Monthly principal and interest payments sufficient to amortize debt over the term of the loan.

COLLATERAL: A first mortgage and assignment of rents and leases on property . Loan to value will not exceed 80% of the after-improved appraised value of the property.

As assignment of life insurance on each of the three guarantors in the amount of $750,000 each.

Lender # 2

Proposed Terms:

Amount: Up to $1,850,000 Construction LOC

Rate: P+1%, interest only

Term: Up to 18 months

Fee: 1%

Purpose: Construction of up to 16 apartment units (2 buildings, 8 units each)

Permanent:

Amount: Up to $1,850,000

Rate 5% fixed for 5 years, with 5 year rate adjustment at 4 Yr. FHLB+300bp

Term: 10 years

Amortization: 25 years

1. 3% prepayment penalty years 1-3, 2% years 4-6, 1% years 7-10; does not apply with NBT refinance or within 90 days of maturity.
2. Minimum DSC of 1.20X measured annually beginning after first full year of operation.

Our goal for the project is passive income so we are trying to maximize the amortization and minimize our interest rates. Are our terms from these two lenders in line what what you are seeing in your areas?

Any help would be greatly appreciated....

Kris