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Wednesday, October 15, 2008

Daily Observations - Land Development

Tonight I want to explore how land development financing has changes over the last six months. We have seen drastic changes as the experienced developer's funding sources have been dried up. It used to be that any experienced developer could either walk into their local bank, access their favorite insurance company or knock on the doors of Wall Street for funding. Not any more....

The experienced developers have made significant changes to adopt to this economic environment. The one thing that we have noticed is that the number of units per phase have been reduced dramatically. Where we used to see 50 to 100 units per phase and even greater we are now seeing 10 to 15 per phase, if they are still developing and moving forward at all.

Lets shift our focus to the individual that wants to develop land for their own facility such as a medical center etc. Lenders will still lend on these projects if the borrower has a substantial liquid net worth as compared to the money needed to be borrowed. Lenders are not lending money to acquire the land as there is no more land-banking.

But they will lend money to projects that are ready to pull building permits, provided the borrowers meet the 5C's +E test for SBA funding or 4C's + E for non-SBA projects, the "C" of character not being applicable.

The key is to be ready to pull the building permit within 30 days or less. Projects that are being funded are ready to be built. No political risk involved. Generally the only thing that should be outstanding at the time of funding for the project to move forward is the capital to move forward.

Visit loanforbiz to read much more about land development financing.

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