It’s been a while since I’ve given an update on our financing situation. The previous posts on financing have been some of the most popular posts from the blog to date so I can assume that many are hungry for more info on the topic.
When we left off last, we had been rejected by the local bank that seemed like a sure bet and had applied to three new banks which were referred to us in the past. We got responses in the form of Term Sheets from two of the three banks. The proposal that is most attractive is from The Bancorp Bank. One of their Vice Presidents was also kind enough to meet me at the site of the project to discuss the proposed development in detail. This always means a lot when a bank rep that is extremely busy takes the time to come out and personally review a project and develop a relationship with the borrower.
Here are the basic terms of the financing proposal which aren’t too bad for a first-time developer:
- Rate: Prime (WSJ) + 1%
- Term: 12 months w/ 6 month extension option (0.50% fee for extension)
- Loan Fee: 1%
- Loan To Value: Not to exceed 80% of the “as-complete” appraised value of the project
The loan is broken up into the following line items:
- 64% of the land acquisition cost
- 100% of the hard construction costs (builder cost)
- 100% of the soft costs (architect, engineering, ect)
- Interest Reserve – built in so we don’t have to make interest payments during construction
We have signed the term sheet and returned to the bank indicating that we want to move forward. The next steps include providing plans, builder costs, builder contracts, tax returns and other miscellaneous items. The bank will then review our project in detail to make sure they want to move forward with the financing as planned. The due diligence period we had on the lots has been extended to Feb 5th in order for us to receive this final approval and settlement is scheduled for the 22nd of February. If all goes well we will be able to break ground in March. This depends on the builder’s schedule and our ability to get all zoning approvals and building permits in time.
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