Financing Home Developments

I wanted to share with you some recent communiques between myself and an experienced broker in SC area, to give you a feel for what is happening in the South right now as far as financing home developments goes. I have been working with an experienced developer in SC with multiple successful developments to their credit. With bank capital dried up, they can't get the funds to do what they do, and are suffering for it. (parenthesis are mine)

"(names removed), thanks to the introduction by Marianna, I extend greetings from Johns Island, SC which is my operational home base as a ten year established business development and commefcial finance consultant. I am also a Sr. VP with the Sigma Capital Group, a "boutique" investment bank primarily focused on the energy/renewable energy, clean-tech and Eco-Green RE sectors.

In addition, I am a Managing Co-Partner in the Home Builders Consulting Group.

Yana advised me of your immediate need to secure re-financing for your projects in --- and in the ---- areas of SC and, as I sure you are aware, this moment in time is far from favorable with regard to ANY type of residential development and certainly not for "spec" home construction.

I have included a couple of paragraphs that I recently sent to Yana:

**"As far as your SC Developer client is concerned with those projects in ---- and in ----... IF he has a sufficiency of verifiable PRE-SALES then there MAY be a way of securing HARD MONEY funding. You mention an airplane.... who owns it, what type and how old? What is it worth? How much is owed on it?

You advise that current projects are "worth" $2.675-million. What is their "Quick Sale Value". Deduct out present bank debt = "equity in project". How much money do they need and for how long?"**

I currently have three fairly sizeable MPC's in The Carolinas that have been "stalled" due to (Bank name deleted) "pulling the plug" without notice on the respective developers seven months ago even though those folks were in no sense delineqnent or behind schedule. Now, they are in "deep s_ _t" because they have zero cash reserves with which to engage with any new lender let alone cover the required cost of updated MAI Appraisals.

The once favored "Senior Living/ 55+ Lifestlye" market has CRASHED because prospective buyers are now either "upside down" on their present "metro home" or their available equity, assuming they could find a buyer at today's reduced value, does not provide them with sufficient profit to engage in a new purchase + cost of physical relocation. Sad, but true.

(I know ) ------, a major web publisher of recreational and lifestyle real estate developments, and his advertiser base and daily traffic count has dwindled to a perilous point.

Even upscale modular brands such as ---- Homes have been forced to "shutter" Plants that were once thriving.

Is there "hope" in this current misery? Depends on how you define "hope"! I do have an investment group that will selectively acquire "distressed" developments at a price that enables the developer to escape with their hides almost whole but even those "vultures" are thinking twice about deals they have already issued LOIs on.

My "friends" at ---(name of bank) ---are now refusing to even consider residential "spec"/developer deals because they are holding too many delinquent projects.

Yana advises me that you are at least succeeding to find TWO buyers per month which is better than most! I assume that with a legitimate pre-sold purchase contract with a mortgage pre-approved buyer that your existing bank relationship will fund the construction loan.
You are more than welcome to call me to discuss. Best regards,

Richard Cooper
Richard Cooper Consulting
3759 Mary Ann Point Road
Johns Island, SC 29455

My clients responded to the email with this:
" Richard, Sorry it took a few days to respond . . . --- and I have a 14 acre site that is zoned for 46 ranch condominiums. We would like to get started moving dirt somewhere between summer and fall with a twelve month development period before units are ready for closing. So the first closing would not be until mid 2010. We are well aware traditional bank funding will not be available in this time frame so we are in search of private funding that offers more flexibility. If this is something that you think you can be of help with we would like to set up a time meet and go over more of the details. Thanks "

Which was followed with this:
Richard, --- and I have a 14 acre site that is zoned for 46 ranch condominiums. We would like to get started moving dirt somewhere between summer and fall with a twelve month development period before units are ready for closing. So the first closing would not be until mid 2010. We are well aware traditional bank funding will not be available in this time frame so we are in search of private funding that offers more flexibility. If this is something that you think you can be of help with we would like to set up a time meet and go over more of the details. Thanks

Which was folowed with this:
----, many thanks for your reply. To give you some idea of how bad things have gotten I have a client (very established and profitable hotel development/operations group) seeking financing for a new ---- hotel in ---- GA. Seven months ago, pre-approved at 75% of COST. Lender pulled out prior to closing citing internal liquidity issues. Now down to two lenders who are offering 65% of COST which client can live with but with a "nasty" clause that they are having a problem with.... Personal Guarantors from each of the Stock holders who own 10% or greater of the project in addition to 8-Points (total) and pre-pays of $20K.

The word "condo" = a stake in the lender's heart, particularly if a new development. The only way of appealing to a lender with this type of project is to be able to demonstrate and PROVE a continuum of STRONG demand for that type of property within the subject market from potential buyers who can be MORTGAGE APPROVED BY LENDER. In addition, 75% of the available units need to be PRE-SOLD to approved buyers. In absence of that criteria then the best I can offer would be a land refi, assuming you already own the 14-acre site. The loan would be based on up to 50% of the MAI Appraised "As-Is" value as further DISCOUNTED to arrive at a price that the lender believes would attract a buyer within 120-160-days if they had to foreclose. I have one lender who might have interest and their combined points and rates will be "Welcome Guido and Vinnie!". Although they add points and interest into the loan amount and defer payment for the 12-month loan term (which is helpful) on a loan of $10-million (for example) the borrower would be paying back a total of almost $13.25 million. Another issue that has to be factored is "Declining Values". Value basis today $XXX. What % reduction is probable within the next 12-months? Regardless of points and interest rates, ANY new residential construction anywhere in the Country requires the developer to have 40% of COST available to invest in their project and that assumes there are very little market related negatives in effect or projected. PLUS, the requirement for plenty of confirmed PRE-SALES. "

I hope you enjoy these examples of what is happening now across the country...as financing dries up, I have found it helpful to cooperate with brokers across the country to get deals done...if you are a loan officer or broker who would like be included in our network, please contact me. If you are a private investor or lender and are interested in taking a look at this or other loan requests we now have, please contact me!