Don't Chase Commercial Construction Loans
Right now it usually doesn't pay for the typical commercial mortgage broker to work on commercial construction loans or residential subdivision construction loans. Here's why:
- With the possible exception of apartments, the U.S. is awash with extra buildings. Homebuilders are sitting on hundreds of thousands of unsold homes. The nationwide vacancy rate for office buildings is close to 20%. Retailers are getting clobbered in the current recession, so the vacancy rate for retail space is skyrocketing. Hotel occupancy rates are plummeting. The simple fact is that the United States really doesn't need a whole lot of new buildings.
- Even when the economy was strong, the typical commercial mortgage broker seldom got to work on any decent commercial construction loans.
- The reason why is because banks make a ton of money if they make a good construction loan. It has always been easy for qualified developers to simply trot down to a local bank and get a construction loan.
- As a result, only the unqualified developers ever called commercial mortgage brokers to find a construction loan.
- A developer could be unqualified because he had very little construction experience.
- More often a developer would be unqualified because he could not contribute 20% of the total cost of the project in cash or equity in his land.
- As a commercial mortgage broker, you will find that 95% of your commercial construction loan applicants lack that required 20% of equity.
- As a result of the subprime and banking crisis, banks often are now demanding that developers contribute 30% to 35% of the total project cost in cash.
- Very few commercial mortgage brokers will ever see a developer who can contribute 30% to 35% of the total project cost.
- And if a developer was wealthy enough to contribute 30% to 35% of the total project cost in cash, you can bet that he has tons of contacts directly with banks. He doesn't need you.
- Therefore, if you want to feed your family, don't waste time working on commercial construction loans or residential subdivision construction loans right now (if ever).
- Does this mean that there are absolutely no commercial construction loans that make sense? No. The deals that still make sense in today's market are the small commercial construction loans, made to owner-users, from SBA lenders, typically under the 504 Program. You can apply to dozens of SBA 504 construction lenders using C-Loans.com