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Banks not doing anymore construction loans
I am a developer/builder. I am doing a spec 20k sf warehouse in Nashville. The bank that I have used for many years has stopped doing all construction loans. Told me that their construction bucket is full. Kind of a bummer since they ordered an appraisal that has already been completed. Now I am stuck without a loan, an appraisal that may not be accepted by another lender, and I am about to get full building permit and finished with grading permit. I am wondering if anyone else is experiencing this problem.
I love how banks say its all about the relationship, but then leave you when you really need them.
- Lender
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They might still be doing them but do not want to go through the process. Talk to different lenders that want to develop a partnership.
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Lender California (#02161719)
- 818-269-7983
- https://www.luxeprivateinvestmentsllc.com/
- [email protected]
- Investor
- Fairfax, VA
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I can't speak to construction loans but I can speak to financing investment properties in general. My main banker told me that they are derisking their retail portfolio this past spring and are requiring more money down and are more selective on deals. Banks can change on a dime their underwriting policies and it's frustrating when you're half way through the process. I have been through about 8 banks in my investment career and I've learned to keep in touch and have at least two or three in the quiver when you're ready to make that offer.
- Attorney
- Dallas, TX
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Yep, pretty much the story across the country. Why can't you get a tenant to sign a lease? Is it a single tenant building? Consider subdividing for two and getting at least one tenant to sign for half.
You were doing spec to start, did you already own the land? What was your plan if you couldn't get a loan?
I do not have the building marketed yet for lease. I just am now finishing up on the permits. I did put in the plans to be able to put in a demising wall to split up the building into 2 10k units. I did this because if I had trouble renting out the 20k sf space, I could put in the wall and get two tenants.
And yes, I already own the land. I dont feel like it will be a problem getting a construction loan. It’s just a matter of picking the bank w the best terms.
There are plenty of lenders still doing GUC loans for those with experience. Many have restricted the programs quite a bit but many still do them. This part of the market is booming for me right now as nearly 30% of the loans I am doing right now are GUC in all parts of the country. The majority of my current pipeline is repeat clients... relationships are something I honor.
Cheers!
If your dirt is fully entitled, permitted and ready to go, reach out, we can certainly discuss options.
I work for a commercial financing brokerage and we have not had any issues funding construction deals.
- Investor
- Austin, TX
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Why not get hard money on it?
@Derek Bell, plenty of debt funds out there still doing business. Banks are going back to their lanes of safer lending. Met a bunch of funds this AM at a networking event. Feel free to reach out.
@Jim Flynn total cost of the project is 2.7.
Have the grading permit pulled and about to have the building permit. It’s a spec build and normally, especially with the bank I used before, I had no problem doing spec to get a construction loan. Now some lenders are wanting a lease in place before I build. For sure not as easy as it used to be.
Try NACA, they offer construction loans!
nacaQualificationGuideLines.pdf (nacalynx.com)
Keri Markham
Finally got my construction loan. Not as easy as it used to be and the banks are drying up for sure. Got 85%LTV with a rate of 6.5 for 5 years. Amortized at 25 years. Half point origination fee with a 321 prepayment penalty. 16 months interest only.
Hi Derek, would you mind sharing who you got the loan through?
What your experiencing is something that happens every time the market starts to go bad, and happened previously during the 2008 crash. Banks start tightening their belt, and bankers are faced with two options: keeping their job, or trying to push a risky deal through. And that relationship you thought you had, turns out not to matter all that much.
This ultimately is one of the differences between developing a relationship with a bank, vs developing a relationship with a mortgage broker.
Banks are like car dealerships. Having a great relationship with your guy at Lexus, will only get you access to Lexus cars. As good of a relationship you have with him, he will never sell you a Mercedes, nor will he ever suggest one to you. Each bank has their unique appetite and products they offer. Limiting yourself to a few banking relationships only give you access to what those few banks can offer.
A mortgage broker, on the other hand, is the equivalent to someone who has access to every car on the planet. They’re not restricted by any specific bank’s new appetite for deals or products they offer, and can utilize their hundreds of lending relationships to find the lender who will do the deal.
In every market, but especially in this one, a good commercial mortgage broker is worth their weight in gold.
Quote from @Ari Stern:
What your experiencing is something that happens every time the market starts to go bad, and happened previously during the 2008 crash. Banks start tightening their belt, and bankers are faced with two options: keeping their job, or trying to push a risky deal through. And that relationship you thought you had, turns out not to matter all that much.
This ultimately is one of the differences between developing a relationship with a bank, vs developing a relationship with a mortgage broker.
Banks are like car dealerships. Having a great relationship with your guy at Lexus, will only get you access to Lexus cars. As good of a relationship you have with him, he will never sell you a Mercedes, nor will he ever suggest one to you. Each bank has their unique appetite and products they offer. Limiting yourself to a few banking relationships only give you access to what those few banks can offer.
A mortgage broker, on the other hand, is the equivalent to someone who has access to every car on the planet. They’re not restricted by any specific bank’s new appetite for deals or products they offer, and can utilize their hundreds of lending relationships to find the lender who will do the deal.
In every market, but especially in this one, a good commercial mortgage broker is worth their weight in gold.
Hey Ari, I am thinking the same thing at this point in time. I want to believe that establishing relationship with bankers was absolutely critical. And I did, and their underwriting terms had recently changed for the worse. Not happy about that.
@Bryan Mitchell, I have no doubt that many investors, especially right now, share your same sentiment.
I will say, having a banking relationship can serve a purpose, at least at first, until you find the right broker you trust. There are many benefits to using a broker vs going direct, but just from a rate and term perspective, still maintaining your banking relationship allows you to tangibly see whether the broker can save you money and get you better terms.
For example, unless you’re talking about a complex ground-up construction deal, with many moving parts, that will take significant time and manpower to execute, a good broker, confident in their abilities, will usually work with their clients and allow them to work with their existing relationships while the broker pursues and reaches out to their own lenders. This allows the client to compare the term sheets they get from their banks, with the term sheets the broker gets them from their lenders. If after calculating the broker’s fee, you’re still coming out ahead with what the broker is offering, it’s a no-brainer to go with that.
Do that a couple times, and soon you’ll see you found yourself a good one. Not to mention all the underwriting, negotiating, due diligence, proofreading and paperwork they handle for you. Eventually, most sophisticated investors don’t bother with their own banking relationships, and just have their broker approach them as well. They realize it’s not worth their time, and usually, the broker, who probably already does tens of millions of dollars plus in financing annually with their banks, can probably get a better rate, than any one investor going direct.
This is why we try to have multiple banks and not put all our eggs in one basket. Even if one bank is doing great for us we'll look for another to put at least some loans with. Look around, even in this market there are still banks making construction loans (I talked to one that was interested just last week on a spec house).
(BTW, banks saying "we want a relationship" is really just code for "we want you to deposit money with us.)
Quote from @Ari Stern:
@Bryan Mitchell, I have no doubt that many investors, especially right now, share your same sentiment.
I will say, having a banking relationship can serve a purpose, at least at first, until you find the right broker you trust. There are many benefits to using a broker vs going direct, but just from a rate and term perspective, still maintaining your banking relationship allows you to tangibly see whether the broker can save you money and get you better terms.
For example, unless you’re talking about a complex ground-up construction deal, with many moving parts, that will take significant time and manpower to execute, a good broker, confident in their abilities, will usually work with their clients and allow them to work with their existing relationships while the broker pursues and reaches out to their own lenders. This allows the client to compare the term sheets they get from their banks, with the term sheets the broker gets them from their lenders. If after calculating the broker’s fee, you’re still coming out ahead with what the broker is offering, it’s a no-brainer to go with that.
Do that a couple times, and soon you’ll see you found yourself a good one. Not to mention all the underwriting, negotiating, due diligence, proofreading and paperwork they handle for you. Eventually, most sophisticated investors don’t bother with their own banking relationships, and just have their broker approach them as well. They realize it’s not worth their time, and usually, the broker, who probably already does tens of millions of dollars plus in financing annually with their banks, can probably get a better rate, than any one investor going direct.
True. Build your team, but make sure the bank’s products still meet your requirements.I know some wonderful bank employees but they don’t get to choose what products they offer. I still like them 😊