How Do Developers Bridge the Gap Between Predevelopment and Construction Financing?

[Benjamin Lartey]

Question for developers, lenders, and experienced investors:

I am currently developing a planned 20-unit boutique condominium community in Kaufman County, Texas. The land has already been acquired, and I have personally invested over $40,000 into the project to date.

I am currently working with my architect, civil engineer, structural engineer, and MEP engineer and am moving toward permit-ready plans. The challenge I am facing is bridging the remaining predevelopment funding gap of approximately $35,000 needed to complete the engineering, permitting, condominium mapping, and HOA documentation.

Once these items are completed, the project will be positioned to pursue the next phase of financing for the horizontal improvements and ultimately construction financing for the vertical buildout.

For those who have completed development projects, how did you bridge the gap between land acquisition and obtaining construction financing? Did you use private investors, bridge loans, equity partners, seller participation, predevelopment lenders, or another strategy?

I would genuinely appreciate any insight, lessons learned, or recommendations from those who have navigated this stage of the development process.

[Stuart Udis]

If you do not have access to the additional $35,000 needed to complement the $40,000 you have already invested, how do you expect to secure financing for a 20 unit ground up development? One of the first things a lender will evaluate is liquidity, and a lack of liquidity will be an immediate concern regardless of the merits of the project.

Rather than focusing solely on raising the remaining predevelopment capital, I would be thinking more strategically about the capital stack. You likely need a development partner who can contribute not only the remaining predevelopment equity, but also help satisfy the lender's required equity contribution and provide the financial strength lenders expect to see. Just as importantly, you may need a loan guarantor with the liquidity and net worth required by the bank.