You are a builder or a developer who has a builder on your team. You call up a bank or commercial mortgage broker. You are concerned about exorbitant fees. You've heard that business owners are being asked to pay fees and then wind up with nothing. What's more is the money in escrow you've handed over for the purchase of the land that you want to build homes on is at stake.
One thing is certain. Builders can protect themselves by getting the terms and fees in writing. Furthermore, if the bank or broker can not get anything in writing or you are dealing with only one lender then it may be time to deal with a commercial mortgage broker who works with more than one lender...but more specifically works with more than one commercial construction lender.
That being said, why do some banks charge $25,000 "application" fees? Cost of Money. Most builders and borrowers in general are concerned about rate and terms. That makes sense because that is part of the cost of their construction project.
An experienced builder understands that the bank has cost as well. IF the bank is using their own money then its opportunity cost..and if its borrowed money (ie from investors, secondary market) then its a ticking deadline for the bank to produce a profit for the investor. The borrower who thinks that the banks are rolling in the money and don't have to charge what they charge will in some way, usually not directly, allow this "you bankers are taking me for a ride" mindset to be exhibited to the broker or the bank loan officer. An experienced builder/borrower knows that everything you say to the bank can determine your loan outcome. As the process moves on the Bank will determine if you are a cooperative borrower or a combative borrower. Bank representatives will conclude if the borrower/builder is trying to dictate the terms without regard to the cost of money and the bank's obligations to their investors.
Investors are number crunchers. So lets give a simple breakdown. Recently American Cash Solutions Inc obtained an $11.5 million dollar Letter of Interest for a Builder who will construct over 100 singe family residences and over 10 commercial buildings over a two year period or less. From the time a letter of interest is issued to the time an appraisal is done can exceed 30 days(experienced builders know not all $11 million dollar loans will close in two weeks). If a commercial construction lender is going to take on a high risk project then the rate will be over 10%. 10% of $11.5 million is for one year $150,000 which breaks down to about $12,500 a month. so let's say the appraisal comes back with different numbers..maybe the builder padded construction cost...maybe the builder lied about the value of the project...maybe the seller mislead the buyer. A real estate agent once made a very smart comment..you must first sell the price of the property to the buyer and then you must sell it to the lender through and appraisal. Well now loan to cost and ltv are changed by the appraisal's outcome. Both the lender and the Builder must go back to the drawing board. This may take more time. Maybe title issues come up. Then the real nightmare begins. The builder makes a bold and reckless misrepresentation to the broker or bank that the land was not farm land and the lender specifically said they will not touch(bank slang for lend on) farm land. Well know the bank has wasted two months with no loan. Remember that cost of money to the bank? Well $12,500X2 months equals $25,000.00
The bank declines the loan and now must rely on its own loan officers or broker connections to get another loan. So if the next loan application is declined due to other reasons then the opportunity cost factor becomes more significant. Imagine if a bank has $200 million of investors' money and has signed legal contracts that obligate the bank to pay a profit to the investors either on a quarterly, semi annual or annual basis. Each day, each month cost the bank money. Obviously if this bank fail to write any loans they would lose investor confidence and if the investors pull out the bank is doomed!
Another factor that borrowers/builders don't think about are the loans that were actually made but become nonperforming...the builder fails to pay or produce construction results. Now the bank is stuck with a construction project that they don't want to complete. The bank will be stuck with the cost of selling the property, covering its obligations to its investors and if the property fails to cover the loan amount then the bank has to still pay back its investors or if its their own money then the bank lost out on an opportunity to lend the money to a builder that would have met its obligations under the terms of the loan.
American Cash Solutions Inc encourages builders and landholders who need to finish their subdivisions. to contact the owner Charles G Hennebeul directly at 631-368-2219. Minimum loan amount is $2 million dollars. Must be upfront about networth,cash on hand and potential partners/investors which ensures better placement with appropriate lender relative to your particular loan scenario.
Charles G Hennebeul
Owner
American Cash Solutions Inc
http://www.mybuildingfunds.com
631-368-2219
This blog was reposted by American cash Solutions Inc from its corporate wesbite www.mybuildingfunds.com
American Cash Solutions Inc is pleased to announce it has obtained a Letter of Interest on behalf of a Builder located in the Midwest. The project involves construction of over 100 single family homes, over 5 Industrial Buildings and over 8 Commercial Mixed Use properties.
The Construction Loan is for 3 years with a one year lockout.
What made this project viable to the lender was 1)positive demographics 2)enough presolds that demonstrate interest from buyers.
In today's markets, builders and developers will find that lenders view an exit plan as an answer to how the bank will get the money back that they are lending out. Builders and Developers are doing themselves a favor by consulting with real estate agents and having a top notch marketing plan in place that adresses who the buyers will be!
While American Cash Solutions Inc makes no promise on behalf of its lenders, direct or implied, we encourage Builders and Developers to contact the owner, Charles G Hennebeul at 631-368-2219 to discuss subdivision projects, underlying loans for co-ops, condos; construction take out loans, and repositioning of problematic construction loans with a commercial purpose.
Charles G Hennebeul
Owner
American Cash Solutions Inc
631-368-2219
http://www.mybuildingfunds.com
And they are also declining them! So what's the point? Getting a loan approval depends on meeting the lenders revised guidelines. Private Money Lenders ARE Hard Money Lenders. Today they even try to call themselves "situational" lenders. It seems back in the day, the high interest rates normally associated with "private" money lenders led to the private money community being defined as hard..so why didn't we call good credit lower interest rate lenders "soft money lenders? Perhaps this is a classic example of a business sector's failure to define itself before others did. Hard money can actually do what other banks REFUSE to do..to issue loan approvals that help a building owner out of a problem.
One example I recent ly encountered is a building owner who has a five year balloon with a national lender that comes due in one year. We all know one year is like a week in terms of dealing with a looming and potentially dangerous balloon commercial mortgage. But what's a building owner to do when the debt to income analysis shows that while the bills are being paid there are too many bills relative to revenue in the eyes of a conventional lender? The building owner is declined by bank after bank and then only upon speaking to a broker, learns from the broker that those conventional lenders won't lend to people with high debt even if the credit scores are between 620 and 650! So now the building owner is getting nervous because the banking crisis is all over the newspaper, internet and people's retirement savings! building owner is worried that banks are tightening up and making credit more difficult to get...and they are! Building owner realizes that this is not just temporary but in many cases a return to pre 9/11 lending standards where underwriters actually get to underwrite a loan file without being harassed by their boss for doing there job!
Broker says to building owner, I'll go to a conventional lender and see what they say. Broker does and loan is declined. Broker did the right thing for building owner because many property owners are declined because 1)bank they went to on their own is the wrong type of bank for their property type or isn't lending anymore in that part of the state or the whole state! 2)building owner or broker did a terrible job presenting loan to bank and didn't correctly argue the case before the bank and the Broker can then rule out thse possible reasons for a loan declination.
A reputable Broker will use a "hard"/situational/private money lender as a last resort. Now that Broker sees that building owner is not "bankable" with Main Stream lenders Broker will go to a hard money lender. Most will require an appraisal, some won't but may not lend in the state you own your property in. Broker should put in presentation to hard money lender one very important thing....that the proposed future loan should have some meaningful benefit to the borrower. In this case, the building owner is approved for a hard money loan at 11.9%, no prepayment penalty, NO Lockout clause, five year balloon and the monthly payment is being lowered by over a thousand dollars. Building owner's cross collaterization is removed (which will allow him/her to use those assets for other financing request or possible sale to raise even more cash) and a family member who cosigned will come off the loan(and Broker explains to borrower that family member should never have cosigned since they are not on the property and has no day to day role in the business-of course that bank will tell you otherwise). Building Owner is required to pay out of pocket for appraisal and toxic report. This may take another two weeks to 30 days.
In the building owner's case above there are enough benefits to go with the loan...oh and did I mention it gives him/her more time to escape the balloon? Building owner tried to get a loan with SBA, spent much time at the SBDC(small business development center) working on a business plan that didn't even result in financing. Building owner gets closure knowing that there are other financing options out there. Building Owner's plan is to pay down the credit cards that were used to renovate/rehab the building and if possible move to a conventional loan with a permanent fixed rate in about a year or two. Building Owner also is consolidating three liens on the property into one thereby reducing default and acceleration into foreclosure by any one lien holder (yes many people fail to realize that this dangerous clause may exist in a second or third mortgage note with regard to the additional second and third mortgage lien that you know is placed on your property!).
Hope this helps you understand how a hard money loan can be a bridge to becoming "bankable" and adress other problems besides the loan that plague building owners.
Charles G Hennebeul*Owner*American Cash Solutions Inc*631-368-2219*
http://www.mybuildingfunds.com
It is inaccurate when media says there is no money...most hard money comes from private money, not Wall Street.
One of my lenders received a $50,000,000 credit line from a publicly traded bankt hat has beena round since the 1800s.
I have a lender that is working on my customer's request for $15 million to build homes, mixed use and commercial. This lendr is calling me to schedule the conference call. Media says businesses aren't receiving calls back...that is true but for commercial real estate..that is not the case.
Wall Street did not go crazy with regards to commercial. Sure some did..but most didn't. Most want 20% or more for downpayment with the exception of construction after value. Commercial properties have less risk when more than one tenant exist. On the residential side for a single family unit all the risk is in the wage earner or reliance on a self employed statement of income.
Real Estate is still the leading cause of millionaires across the country!
Charles Hennebeul
Owner
American Cash Solutions Inc
http://www.mybuildingfunds.com
631-368-2219
The implications of not creating a solution to the mortgage problem is so serious and it is shocking that they did not pass SOME solution on a bipartisan level.
The failure to solve this banking crisis will lead to massive job losses, failure of banks, and quite possibly a severe recession.
Small business owners must call there elected leaders and DEMAND a solution.
The global implications will unfold in a violent and destructive manner that the markets have not seen for over two decades.
That is all I can say as the Perfect Storm looms over our weary souls.
Commercial Construction Loan Broker. Emphasis on Construction, Hotels Motels;Joint Ventures, Bad Credit may apply! We Care!Loans from $150,000 to $200 million. Out of Box scenarios-we research
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