What Are You Paying For Spec Interim Construction Loans?

[Bryan Hancock]

Here is our current debt selection for spec interim construction loans:

80%- LTC = Roughly 6%, 1 point
85% LTC = Roughly 9%, 2.25 points, 5% profits sharing
90% LTC = Roughly 10%, 2.5 points, 10% profits sharing
95% LTC = Roughly 11%, 2.75 points, 15% profits sharing

Note the latter three (frothy) loan scenarios are from one source and they'll reduce points on later transactions.

We're looking for some private money options as well, but the hassle to benefit ratio is quite high for private construction financing so a more traditional source of funding is better for this reason.

Unfortunately we also have a high hassle factor with the small banks' regulators only wanting them to finance 1-2 spec loans per bank. So each new project we have to take to a new lender OR pay a higher rate to a hybrid asset-based/balance sheet lender. The amount of effort involved in starting a new banking relationship for each project is quite high. We have about 10 small regional banks that are either loaning us money or have said yes to loaning us money.

Any thoughts on a solution to this brain damage? I'm happy to pay a small premium in rates and points to write all of my loans through one lender. I realize they have concentration risk concerns and such, but I was wondering if anyone has a good solution for this so that we can focus our effort more on projects, raising equity, business development, etc. and less on finding a new debt source for each project.

We are considering being a finder for a fund manager I know that raises debt in trade for him steering some loans our way. We frequently have investors that are not interested in equity funds, but would gladly invest their money in a debt fund that has first lien position to provide security for the money. This is still inefficient and we would rather just borrow money on our good credit and strong financials than to goof around with raising the debt on our own.

[Will Barnard]

Bryan, when I was spec building in TX back in the day, I used all private money for the deals. I borrowed at 10%-12% with no points and no equity share. I am a big believer in PM loans. I hate conventional funding, it may bless expensive, but the paperwork and hassle are just not worth it in my opinion.

My advice is to go after more private money.