Construction Loans >Commercial Construction Loans and Land Costs
Commercial Construction Loans and Land Costs
How Much is the
Land Worth That the Commercial Property Developer is Contributing?
a commercial construction loan, the commercial property developer will
often say something like, "I only paid $400,000
for the land but it is actually worth $1,000,000."
As a general
rule, a commercial property is only worth what the seller could get
for the property. If the property really was worth $1 million, the
seller never would have sold the commercial property for just $400,000.
As a result, the wise commercial construction loan underwriter will
only use the actual purchase price.
But there are exceptions.
Suppose the commercial property developer bought the land while it
was still zoned agricultural and successfully convinced the city or
county to rezone the land for office or multi-family (apartments) use.
In this case, the commercial property developer has added value to
the land. In this case, even the conservative underwriter would be
justified in using the new value of the land due to the successful
would be if the commercial property developer purchased the land a
number of years earlier or if the developer had the land under an option
contract for several years and the value of real estate in the area
appreciated sharply in the meantime.
construction lenders want the commercial property developer to bring
the land to the deal free and clear of any liens. If there is a mortgage
on the land, the commercial construction lender will usually ask the
commercial property developer to contribute enough additional cash
to the deal so that the commercial property developer is covering at
least 20% of the total cost of the commercial construction project.
You can find hundreds
of commercial construction lenders and mezzanine lenders on C-Loans.com: C-Loans
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