Financing options for Developer

10 Replies

Medium sized developer building approximately 50 homes per year.  Funding is almost entirely cash and we’re looking to add a greater percentage of financing.

Problem is that traditional mortgage lending is too inefficient.  Inspections and significant transaction costs slow things down and are not a great fit for our goal of increasing volume.  Have many banks willing to lend and have had discussions about line of credit type financing but haven’t found what I think is the ideal structure yet.

Looking for thoughts on how to efficiently add financing to a 10MM + portfolio.

Thanks!!

@Justin Witkin

I'm a Developer/Builder in Orlando, Florida looking for similar financing for AD&C funding. Curious to see how things worked out for you creating the fund or if you found other avenues. Thanks in advance for anything you're willing to share!

@Giovanni Jordan - Decided against a general fund for a variety of reasons.  We are currently finalizing a syndication raise on a package of SFRs.  Found a "close to" non-recourse lender that will work with dirt (those are few and far between) and have talked to some mezz financers that may be able to help on large projects.  


In sum, still looking for the financing silver bullet, but putting bits and pieces together.  Let me know if you have any questions. 

Hey @Justin Witkin , from what you're saying it, sounds like you are looking for a go-to lending partner or fund to have accessible capital for your projects throughout the year. Most of all you're not looking for any red tape and you want speed. 

I work as an alternative lender, so our business model should be a fit for what you're looking for. Would love to have a conversation to see if either we can support your objectives or even refer options for you. Just think you would get a lot of value out of a conversation. Let me know. Would be more than happy to help.

Originally posted by @Ryan Herting :

Hey @Justin Witkin , from what you're saying it, sounds like you are looking for a go-to lending partner or fund to have accessible capital for your projects throughout the year. Most of all you're not looking for any red tape and you want speed. 

I work as an alternative lender, so our business model should be a fit for what you're looking for. Would love to have a conversation to see if either we can support your objectives or even refer options for you. Just think you would get a lot of value out of a conversation. Let me know. Would be more than happy to help.

Banks are your cheapest and most efficient form of capital and since your building 50 homes with cash a year you should be a slam dunk

anything else is going to cost you more and private or HML will cost you double at least.

Of course banks are full recourse so are most HML non recourse is usually in large MF agency type debt but i am sure you versed well enough on this.

 

Originally posted by @Ryan Herting :

@Jay Hinrichs, yes agreed banks would be a slamdunk when it comes to your cheapest option, but you do lose the spread when it comes to closing.

There are some private lenders that aren't as expensive as hard money lenders and have less red tape than banks. Really depends on what @Justin Witkin is looking for.

Sorry i just replied to the last post  Not talking about your business etc..

but I am aware of the alternatives to bank financing. the HML have entered the space about 3 years ago. and I am sure a big enough player could get a Hedgefund family office type of arrangement.. although I have never really seen them competitive with best bank rates.

and those guys including HML set up their draws etc exactly like a bank and frankly are more clunky than banks. My bank draws are WAY easier and efficient to manage than the few HML I borrow construction money from when I have over flow / IE no credit line left on my guidance lines.. PLUS in my mind a well seasoned very close relationship with a local community bank that is funding you is worth its weight in gold.. in the event of a water landing you have a much better chance of restructure with them than you would with the big funds out there and HML for sure. .. Believe me been there done that.. So to me its simply not all about rates if your new builds cant handle some additional bps then the deal is too skinny to start with right ?

 

@Justin Witkin ,

You could look to work with a family office or a private fund; both may theoretically provide programmatic capital like you're seeking.

It sounds like efficiency and ease are top priorities for you, both of which are unlikely to be found with a bank. Although, like others have mentioned, a bank will likely be amongst your cheapest capital options, particularly in terms of fees.

Best,

Michael

Thanks for the replies.  Yes, Bank money is the cheapest and we have used it in various bigger developments.  There are some situations, however, where alternatives to bank financing may be preferable.  A family office partner would be a great fit and we can deliver solid 20% returns.  Havent found that partner yet, however. 

Would be happy to connect directly to discuss further.