Frank X Acocella, CounselPro Lending, on Construction Loans

Commercial real estate developments frequently incur millions of dollars in construction costs. Investors and developers in the commercial real estate industry must rely on external financial solutions including securing loans to put up the real estate properties. The commercial real estate loans differ significantly from home mortgage loans. The market is flooded with various common types of commercial real estate development loans.

Land Development Loan
The land development loan is suitable for preparing raw and undeveloped land. The loan is specially meant for facilitating the subdivision and servicing of the land by the installation of various utilities such as power lines, water, and sewer systems.

Acquisition and Development Loan
The acquisition and development loan is appropriate in cases where land is semi-developed but still need some form of improvements. This means that some sort of infrastructure still needs to be developed on the property. Whether it is building roads or demolishing existing buildings, this loan facilitates the acquisition of the land.

Mini-Perm Loan
The mini-perm loan is a loan commonly secured to clear outstanding construction loans attached to a given property. This loan is secured because upon completion; the property would produce income. Depending on the developer’s needs, the mini-perm loan can be extended into a long-term financing option for expanding or completing the property.

Takeout Loan
The takeout loan serves as a permanent financial solution on properties that have a temporary short term construction loan already attached to them. Lending institutions normally provide takeout loans for developers who have already secured short-term loans for their projects.

Interim Construction Loan
The interim construction loan serves the purpose of paying for labor and construction materials that go into a construction project. Financial institutions normally provide an interim construction loan valid for between 18 and 36 months which is then replaced by a long-term mortgage once trust is established.

Crowdfunding
Crowdfunding has come in as a new form of funding commercial real estate developments where smaller investors pool together funds to achieve a bigger project. Crowdfunding, in most cases, gives small investors with limited financial capability the opportunity to buy shares within a larger real estate development.

Before considering a construction loan, it is important to understand the terms and conditions of the loan. Attributes such as the loan-to-value ratio, the loan repayment schedule, and the interest rates and other payable fees should be considered to ensure that they are favorable.