Commercial Loan: Land and Construction together, or separate.

[Brandon G.]

I'm looking at 3.5 acres that is commercially zoned and has a small

warehouse on it. I want to construct mini storage on the lot. I would

like the forum's opinion on how I should structure the loan. Should I

purchase the land (bank loan) and then after owning the property get a

construction loan to build the buildings/lot/etc, or should I get one

commercial loan that will include paying for the property as well as the

building and construction. The owner is a individual, private owner.

The construction will be handled by a local contractor that I have a

small previous relationship with. For what it is worth, there is a time

factor involved in that there is a large corporation that is also

wanting to purchase the property and ready to do so quickly.

Your opinions are appreciated.

Thank you,

Brandon

[Tim Johnson]

I would look at all options on paper but we generally see the one time close products on construction pencil out the best on paper.  You wrap purchase and construction into one loan.

[Shaun Ashkenazy]

@Brandon G. If you are short on time a Bank Loan will definitely take longer and you won't be able to start the process of getting the construction loan until you close and own the property.

Also, not only having two loans will cost you double in fees, you would also limit your options with lenders, as most lenders require a 1st position lien. Getting one loan will probably be the best way to structure this deal.

If you are still shopping around for lenders, feel free to PM me.

Good luck!

[Tim Milazzo]

The way most developers handle the situation is purchasing the land all cash, or with a bridge loan, then shopping for the best construction loan once the project is shovel-ready. I would consider all cash first, for a couple of reasons:

1. If you're competing against another buyer, closing all cash quickly can earn you bonus points with the seller, vs a buyer with a financing contingency.

2. If you can't afford to take down the land all cash, can you really afford the full development of the property, which will likely be a much higher cost? Free and clear land can be your equity against the construction loan.

In the cases where you don't have the cash ready to take it down, a bridge loan will be faster, and more flexible to pay off, than a bank loan. You'd only be paying interest, so though the rate is higher, it is not "more expensive" to make payments in the short run. And you take out the bridge loan with the construction loan once approved.

[Brandon G.]

Thanks for your responses, I appreciate it.  I'll be meeting with a loan officer this week. 

[Kyle Charles]

@Tim Milazzo

Q?: What about if someone with a clear and free mix-use property needed a construction loan with a stipend to pay the interest rate and additional expenses... How expensive will that ultimately be if they needed the the term to be 2-3years?

[Tim Milazzo]

@Kyle Charles - shoot me a DM and let's talk about your specific situation.