There is a market about 10 miles from me that has a big shortage of 5,000-7,000 S.F. decent quality office warehouse space. I know this from talking to several prominent leasing agents in the area. I discovered this as I was working on a 10,500 S.F. warehouse appraisal in the same location.
It made me realize that a good way to determine what to buy or build is to talk to the leasing agents in any given market. It seems to be more effective than watching to see what everyone else it building and getting in when it’s too late.
I do have a question. What are some creative financing techniques for new construction? I understand new construction from the appraisal side and I can cost out the building and value everything. However, I don’t have much experience in commercial construction loans.
Commercial construction loans. What do you need to know?
Well, I’m thinking because of the demand for smaller industrial properties in this area that I would have a good chance of pre-leasing the building before I’m finished building it. I know from doing residential construction loans that as long as you paid the right price for the house you could make the deal happen with no money down, and actually get money back if you were able to keep your rehab costs down (contractor bumps the numbers up a little to have a cushion). How would a construction loan be structured for a deal like this? What I’m getting at is - how could I form this deal with minimum out of pocket costs? I’m trying to see the relationship with the demand in the area (which I would obviously show to the lender), the fact that this isn’t a rehab but new construction, and also that I have to buy the land or at least get it under contract.
Would the idea be to have my team lined up, then get the land under contract and then have a lender finance the whole thing? Because of the demand in the area, should I get the building pre-leased then approach a lender? I guess that would require me to purchase the land or try and get the seller to agree to 60-90 days to close and work on pre-leasing it then. As you can see, I’m trying to think through the best way to do this, and I would like to know how a commercial lender would make it happen with minimal $ out of pocket. Thanks
For construction loans lenders like to see pre sold unit and good exit strategy. But when you do construction, the norm is to have 15% to 25% in liquidity of the bulid out cost. If project is too big. Break it down into stages.
Johnny Q - I appreciate your responses. I’ve seen your name on other real estate forums and I think it’s great that you answer questions when so many other people just ignore them because they get bored of answering the same questions. That says alot about you. It’s important to me that I work with a lender that’s just as concerned about my success as I am. I might need to talk with you about your loan programs in the future. Thanks again