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Financing Term Sheet

by Chad Ludeman on January 3, 2008 · 7 comments

in Development,financing

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.

dollar signWhen 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.

If you enjoyed reading this post I can promise you'll love our new writing over at Postgreen Homes. Yeah, we know that's the same thing your favorite band said and their new album is nowhere near as good as their early stuff, but seriously, we are actually still getting better.

There also isn't much conversation to be had here . . . at least not with us. So come on over to the Postgreen Homes Blog and tell us what you think of our new(ish) digs and crazy ideas. We will be sure to tell you what we think of your opinion.

{ 7 comments… read them below or add one }

1 millscoot January 3, 2008 at 6:39 pm

congrats on getting the loot, or term sheet. I can not seem to get past the term “spec home” before they tell me no, and i have 50% to put down. so good luck and keep the posts flowing

2 chad January 3, 2008 at 7:15 pm

Thanks. I never thought the financing would be so difficult on such a small project. You just have to keep making calls until you find someone who understands what you’re trying to do and is willing to put forth the effort to make it happen… Good luck.

3 Ray January 4, 2008 at 3:30 pm

Congrats Chad,
I’ve been following your blog for about a month now and have been excited to know someone is doing a similar project in the “area” (we’re located in Baltimore). We are looking at mixed dwellings (apts and home ownership) and needless to say funding has been a concern we’ve had since we started our process. We decided to leverage your experiences before going out to secure funding.
I’m not only excited for you but ourselves as well, keep up the good work and the great blog.

4 chad January 4, 2008 at 3:45 pm

Thanks for the comment Ray and good luck with your project! I would imagine that going with a mix of apts and home ownership should allow you to cut expenses and improve the overall affordability of the units.

5 millscoot January 5, 2008 at 4:41 pm

Metropolis, Who knew we were reading the blog of such players? Congrats again.

6 chad January 5, 2008 at 5:41 pm

Are we in Metropolis now? I haven’t seen yet.

7 james January 15, 2008 at 11:03 pm

Chad,

Thanks for talking with me today. i am inspired and look forward to learning more.

best,
James

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