Whether you are undertaking construction and development for an SFR, multifamily apartment complex, hotels, office space, or something completely unique, you need to understand how construction financing works and which options are best suited for your project. As a financial firm that deals with construction projects ranging from small to large and innovative, we want to give you an insider’s view of how things work.
Starting Small
Many commercial real estate investors and developers are familiar with fix and flip projects, single-family rentals (SFRs), and smaller multifamily properties duplexes, triplexes, and structures up to five or seven units). The financing used for renovations or new construction is fairly straightforward. Rehab loans/lines of credit or ground-up construction financing is designed to provide the funding necessary to ensure success from start to finish. Many rehab loans cover up to 100% of the costs, and construction financing offer ongoing to permanent financing.
Moderate to Large Construction Projects
Most moderate to large projects fall into two categories: horizontal and vertical construction. Horizontal construction – as the name implies – is built out instead of up, requires more land, and is typically for public use, such as highways, large power plants, etc. As such, these projects are funded, at least in part, by government loans. The work itself is usually carried out by private contractors, and they may leverage their agreements or invoices through contract financing or factoring to get access to funds faster so they can keep moving ahead, rather than waiting for city, state, or federal agencies to pay their receivables.
Vertical construction does not require as much land, but it can take a lot of funding to line up the resources necessary to complete the project. Vertical construction could include corporate campuses, high-rises, luxury apartment buildings, and more. Unlike horizontal construction, vertical projects are privately funded – either through investors or commercial finance firms – and have tighter deadlines, because these projects are designed to generate revenue. Most vertical projects are funded through construction loans, equity or mezzanine financing, or large balance commercial real estate loans, depending on the size and scope.
Projects That Exceed Conventional Funding
Lately, there have been large construction projects that go beyond the limits of what traditional and commercial lenders can offer. Resorts, large gaming centers, healthcare facilities, industrial plants, and more that have a scope and vision that are truly innovative. Rather than stitch together funding from multiple sources, each with its own terms, interest rates, and draw limits, investors and developers alike have turned to large balance financing. Large balance financing starts at $50 million and can cover projects that require up to $5 billion and above. Large balance financing is structured as a line of credit, so projects can draw on funding as it is needed, rather than juggling one lump sum.
GM Capital Group provides funding solutions for everything from small construction projects to large balance finance financing and everything in between. If you need funding for a construction project, contact GM Capital Group today.
