Financing Large Commercial Building Projects

Large commercial building projects can be very complex financially, as different types of financing are required at different stages of the project, and the amount of financing required can be enormous and require multiple lenders to be involved.

Joyce Miller, mortgage broker

This type of project requires a specialist mortgage broker that has a good understanding of the nature of these types of projects, and where to go for the different types of financing. Developers generally have their preferred mortgage brokers who they know and trust to swing the deal, and they will have let their mortgage broker know well in advance about what their plans are and how much it was going to cost. To find the best mortgage brokers in Hawke’s Bay click here. A smart broker will understand the needs at the different stages of the project and will start lining up their financial options, including alerting key non bank lenders that a big project was coming up.

The developing may be using existing land that they have hung onto for a long time or they may need to purchase the land before they can start the project. At this stage the project may appear to a normal bank to be to risky, and the broker may need to go to a non Bank lender who was prepared to take higher degree of risk but obviously for higher interest rate. If you need Bay of Plenty mortgage brokers click this link. The developer will also need to secure finance for the planning and consenting stage, and the broker may bundle all the lending for the section purchase and the planning stage into one loan.

Unless the developer is a very high net worth individual with liquid assets, they will most probably need to do all the development using debt. The actual build project will require a whole new set of financing, and a smart mortgage broker may be able to roll all of the debt for the section purchase and planning stage into the financing required for the build. Once the actual project has begun in the risk is obviously decreased and financial interest rates will be cheaper and finance companies will be more willing to lend the money.

The actual financing for a build project takes place in different stages, with a tranche of finance being advanced at the start of the project, the second tranche being advanced once all the foundations have been poured. The second tranche will cover all the costs around the building erection, and a third tranche may be advanced once the building is complete and the internal fitting has to take place. At this point the risk in the project will have decreased significantly, and most probably all the key tenants will have signed on, so this is the point which will deliver the most attractive interest rates and terms for the developer.

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