I have been working on a medium size residential development project in TN for the last 2 years. I am about to get final approval and need to find financing for the development, both horizontal and vertical construction. Does anyone have advice on where to look? I have talked to some lenders but I do not have the personal wealth to secure the size of loans that I need. Any help is greatly appreciated!

The key is presales. Much easier to get funding with deposits on hand and hard contracts.

That also makes it easier to get investors to backstop

A few things I've seen:

Some combo of a forward sales contract + a co-guarantor (if you can find one) is a good idea. The forward sales contract somewhat limits the upside, but also significantly lowers the overall risk and hassle of offloading completed product.

Additionally, is it possible to do the development in multiple different phases so you could do multiple smaller loans? Might work if you're already subdividing into individual resi lots.

As a last resort, lots of folks are doing mezz debt or pref equity to fill out the capital stack. Very expensive so this is typically the last option in my experience.

Source: I'm a lawyer (but not your lawyer) primarily in resi and multifamily development.

BowtieAg07 said:

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I have been working on a medium size residential development project in TN for the last 2 years. I am about to get final approval and need to find financing for the development, both horizontal and vertical construction. Does anyone have advice on where to look? I have talked to some lenders but I do not have the personal wealth to secure the size of loans that I need. Any help is greatly appreciated!

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Saw your post about the TN development. I'm in real estate and land development in College Station. We are with each project from dirt to keys so I understand the horizontal and vertical development aspect of things. Would enjoy a phone call with you. Send me a text and we can set something up, if nothing else, to talk shop. 979.676.six five nine 5

I have phased the project to limit the risk since what we are doing is an untested business model. We are building small custom homes (500-600 sf) based on the model of quality homes at an affordable price point.

I am going to presell the homes as much as possible. I have all the pieces in place to where once the horizontal construction is complete I can deliver a home in 6 weeks.

This development will be proof of concept. If it is successful then I can go to any municipality in the state of TN that has a housing problem and implement what I have put together.

custom homes in 6 weeks? sounds ambitious.

It's possible by prefabricating all the homes. Since they are built in a controlled environment the quality can be controlled a lot easier. I know some people will think I am just building a trailer park, but when I toured the plant they were building hotel room suites that will have a nightly rate between $900-$1200/night depending upon the season.

True. The custom part comes from them selecting what they want. I am still figuring out how exactly they need to be marketed.

I was actually planning to do the same thing. Going to start with 8 in Leander

I think for something like this, until it is a proven model -- you'll be hard-pressed to find conventional financing with a regional bank and/or credit union. Private lenders may be the best solution.

To echo what someone said previously, unless you have a partner with illustrative capacity/cash to help carry this, conventional financing will be a tough ask.

What I've seen, conventional cash down for horizontal development can range anywhere from 25-35% (if not more); then when you go vertical you'll be in the neighborhood of 20-25% of that cost. You may have to swap some equity in this for a partner with capital to help get this up and running. Pre-solds are the way to go, but this is the first I've heard of something in that size, and most Banks will be unwilling to lend on something so unconventional unless you have pre-sold a good amount.

For some back of the napkin math, most Banks will want to be out of the development at no more than 75% of sold inventory (meaning if you aim to develop 100 total lots, at sold lot 75 they want their money paid off).

Dr T and the Women said:

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I was actually planning to do the same thing. Going to start with 8 in Leander

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Interesting. We emailed recently about my upcoming project. We should try coffee sometime.

MS08 said:

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Dr T and the Women said:

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I was actually planning to do the same thing. Going to start with 8 in Leander

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Interesting. We emailed recently about my upcoming project. We should try coffee sometime.

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I'm in Austin but would love to

What is your email address? I have a friend looking at some residential development who I would like to introduce.

Happy to chat. What's a good phone number or email?

Just gave him heads up. Shoot him a text, his cell is (832) 477-3898.

BowtieAg07 said:

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I have been working on a medium size residential development project in TN for the last 2 years. I am about to get final approval and need to find financing for the development, both horizontal and vertical construction. Does anyone have advice on where to look? I have talked to some lenders but I do not have the personal wealth to secure the size of loans that I need. Any help is greatly appreciated!

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PM me. I have a well established client based in Houston that has been doing these as a side service line for the last 5 years or so.

I don't have premium. Is there another way I can contact you?

BowtieAg07 said:

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I don't have premium. Is there another way I can contact you?

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Let me know when you see this so I can edit/delete

Email sent