09-28-2005, 10:27 AM
| | Land Acquisition Loans, A Proposed Development, and the Experienced Developer
Finance stuctures, interest rates and terms vary widely for land acquisition
(Government approvals and permits being in place will materially help the
negotiating position of a borrower.)
On acquisitions where the land is treated "as is", often the advance will be
set at anywhere from 45% to 75%, most often at a term of one to two years.
Alternately, a land acquisition loan might be set at 65% or so of the
finished value, bearing a term of two to three years.
Land acquisition loans can typically run from $500,000 to $10 million.
Where a new development is planned on the land to be acquired,an interesting
funding vehicle is now being offered to the highly experienced
Developer---who unfortunately is unable to contribute the remaining equity to bring the
program to a closing.
Essentially, the lender institution directly acquires the property (i.e. the
underlying land and the proposed "program for development") and then
simultaneously retains the experienced Developer to build and manage the property.
In return for its efforts, the developer takes 20% to 25% of the profits from
On balance, it affords a means for the undercapitalized but experienced
developer---fully to spread the risk of the undertaking, and to take a portion of
the profits on a program that would otherwise not be completed.
The lender 's loans under this structure are at $1 million to $50 million.
If you are pursuing a funding on this type of transaction, please feel free
Mr. Margolin of Chilmark Associates Inc. at 203-353-0897.
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