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Two types of construction financing are discussed:
RESIDENTIAL CONSTRUCTION FINANCING
Construction financing is available from the lending community, although terms are not as generous as during the 1980’s. A residential developer should first decide whether he/she would prefer CMHC-insured or conventional financing arranged.
CMHC is a dominant force in residential construction financing in western Canada and is beginning to make an impact upon the Toronto market. CMHC tends to have a lower presale requirement and offers superior pricing versus the conventional lender. CMHC is also now active in insuring construction financing on new apartment rental developments, especially in Toronto. Canadian Mortgage Capital Corporation has "approved lender" status with CMHC. For more information on CMHC, please click here.
COMMERCIAL CONSTRUCTION FINANCING
This type of financing is also available in today’s market, but on more conservative terms than a decade ago. The most important criteria are:
- the quality of the development
- the location of the development
- the level and quality of preleasing achieved to date
- the track record of the developer
Construction financing for commercial properties is most readily available in larger urban centres, although high quality preleasing in smaller centres can overcome this hurdle. Lenders generally focus closely on the track record and financial strength of the developer on a construction loan because of the perceived risk of this type of financing versus traditional mortgage financing.
Unlike most mortgage brokers, Canadian Mortgage Capital Corporation has arranged many large and complicated construction loans.
FINANCING TERMS WE CAN OFFER YOU:
- Aggressive Loan Amount - we will work with you to prepare construction budgets and structure the financing in a way which will maximize the loan amount. We are normally successful in negotiating loan amounts which are equal to 100% of the construction costs.
- Competitive Interest Rates - since we are active in this type of financing, we are very aware of the types of interest rates which are negotiable. For CMHC-insured construction loans, we have arranged financing which is equivalent to prime less 1.0%.
- Term - Lenders frequently negotiate a short term in order to charge an additional renewal/extension fee. We will ensure that the term is appropriate for the scale of development.
- Recourse - construction loans generally require some level of recourse (guarantees). We will attempt to minimize the level of guarantee and negotiate its removal as soon as possible into the construction loan.
If you would like to contact us or ask questions about RESIDENTIAL OR COMMERCIAL CONSTRUCTION FINANCING, then click here.
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