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Sam Giard
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Two New Construction Fourplexes - Satisfy Lender Experience Req.

Sam Giard
Posted Oct 15 2022, 14:00

I am a first time investor, but a seasoned construction management professional. I have worked for ~10 years as a project manager on a wide variety of construction (institutional, hospital, hotels, student housing, commercial and multifamily).

I am under contract on some land with a 90 day contingency/feasibility period, during which time I am rezoning a small parcel of land, completing architectural plans, acquiring building permits and securing financing. I plan to build two fourplexes (8 apartments total) and rent both short term and long term. After construction, I will refinance and hold long term. I plan to purchase in an LLC and manage construction activities myself.

I am having a hard time finding suitable financing. Most lenders I have spoken with will not utilize my professional experience (as a construction project manager) to satisfy the past performance requirement (typically 2-3 projects in the last 3 years), and are not able to assist due to past performance. The project pro-forma is great, and many said they are able to finance if I can get a partner to co-sign or join my LLC.

I have seen suggestions to JV with a builder for solely the construction period (to check the box on past experience), and utilize that builder for construction. I have also seen suggestions on finding another partner to let in on the deal, which is not my desired solution.

Is anyone able to lend some advice, or experience, on what the best way to meet the past experience requirement for lenders is for a first time investor?

#fourplex #multifamily #new construction #BRRRR

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Don Konipol#5 Buying & Selling Real Estate Discussion Contributor
  • Lender
  • The Woodlands, TX
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Don Konipol#5 Buying & Selling Real Estate Discussion Contributor
  • Lender
  • The Woodlands, TX
Replied Oct 17 2022, 12:13
Quote from @Sam Giard:

I am a first time investor, but a seasoned construction management professional. I have worked for ~10 years as a project manager on a wide variety of construction (institutional, hospital, hotels, student housing, commercial and multifamily).

I am under contract on some land with a 90 day contingency/feasibility period, during which time I am rezoning a small parcel of land, completing architectural plans, acquiring building permits and securing financing. I plan to build two fourplexes (8 apartments total) and rent both short term and long term. After construction, I will refinance and hold long term. I plan to purchase in an LLC and manage construction activities myself.

I am having a hard time finding suitable financing. Most lenders I have spoken with will not utilize my professional experience (as a construction project manager) to satisfy the past performance requirement (typically 2-3 projects in the last 3 years), and are not able to assist due to past performance. The project pro-forma is great, and many said they are able to finance if I can get a partner to co-sign or join my LLC.

I have seen suggestions to JV with a builder for solely the construction period (to check the box on past experience), and utilize that builder for construction. I have also seen suggestions on finding another partner to let in on the deal, which is not my desired solution.

Is anyone able to lend some advice, or experience, on what the best way to meet the past experience requirement for lenders is for a first time investor?

#fourplex #multifamily #new construction #BRRRR

How much of your own cash are you putting in vs how much are you trying to borrow?  My experience is that once you have enough equity capital invested financing becomes a lot easier.  The misconception I keep seeing is that investors doing these venture type deals ( development, construction, reconstruction) want to attract financing with the same 20 - 25% down used  on the purchase of an existing cash flowing with debt coverage improved property.  Sometimes, it is possible to obtain leverage almost as good by substituting successful track record or a high net worth guarantor.  

We both make Private/hard money commercial real estate loans, and also purchase properties for a seperate portfolio we run.  To obtain the best rate and terms, we use a 50/50 debt/equity ratio when financing the purchase of a property without a history of long term tenants. Lenders do not want to be on the venture risk end of the stack, they want the equity to cover that.  

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Nick Belsky
  • Residential and Commercial Broker
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Nick Belsky
  • Residential and Commercial Broker
Replied Oct 23 2022, 04:00

@Sam Giard

A year ago, you probably would have been able to get financing much more easily.  Many lenders have frozen their GUC products entirely or tightened up on the guidelines so much that those without extensive experience will find it tough to get in the door.  I work with some lenders who still allow a new investor who is a licensed Realtor to count that as experience for rentals for even fix and flips, but GUC is another animal entirely.  I'd be happy to get a fresh touch on my network to see if anyone would consider your experience to qualify.  Terms would be at the worse case scenario, most likely.  I've been seeing 80-85LTC between 12-24 months at anywhere from 9-15% interest, with and without interest reserves due at closing.  

Cheers!

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Replied Nov 8 2022, 17:35

Did you find a solution yet?