Updated 6 days ago on . Most recent reply
Seeking advice about financing a 25-unit townhouse development.
Hello all. For the past three or so years we've been developing and selling single family homes. All is well. We are the general contractor so our costs are controlled. We have been purchasing the land outright and financing construction through 12-month construction balloon loans with hard money lenders.
An opportunity has presented itself to develop twenty-five townhouses. But we are unsure how to finance a project of this size. Does anyone have any experience with this or advise to lend?
My hard money lender says it's a no-go because they only to loans with twelve month terms and it will take me longer than twelve months. Should I reach out to a community bank or a large bank? We'd like to finance the land acquisition (roughly $1.2 million) as well as construction. Any advice or thoughts would be helpful. Thanks!
Most Popular Reply
At that size, you’re probably moving out of the typical hard money world and into bank or debt fund construction financing.
A 25-unit townhouse project is usually going to need a lender that’s comfortable with longer timelines, phased draws, horizontal development risk, and absorption assumptions. A lot of 12-month hard money lenders simply aren’t built for that.
Based on what you described, I’d absolutely be speaking with community banks, regional banks, and residential construction lenders that do build-to-sell projects. Debt funds could also be an option depending on leverage and experience level, although pricing is usually higher.
The good thing is you already have a track record building and selling homes, and being the GC helps quite a bit from a lender’s perspective since you have more control over execution and costs.
The biggest things lenders are likely going to focus on are total equity into the deal, projected sellout pace, contingency reserves, and whether the project can be phased efficiently instead of building all 25 units at once.