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Over the last 25 to
30 years, the new apartment
construction financing market was dominated by HUD pursuant to their loan
insurance programs. However; the popularity of the HUD programs have
become the bane of their practical applicability. The biggest issue is the
processing timeframe. In many markets, one can get a HUD insured loan
processed in about six (6) months, while in other markets there are many cases
of processing requiring a year or more to complete.
This brings up the
issue of carrying costs; the hidden "opportunity tax" that developers
have to be willing to pay in order to access non-recourse financing.
But, all of this is
changing due to the advent of Internet-based syndication platforms (such as the realestateplayssm
platform run by our affiliate). These programs allow the new apartment
developer to obtain non-recourse construction financing simply by using the
syndication approach to raise sufficient equity that would induce a commercial
bank to make a non-recourse loan.
The differences are
in the carrying costs. Both approaches require 90 days for the production
of the initial due diligence documentation required to sustain an application;
but the HUD route requires significant capital outlays and the extended carrying
cost burden, the size of which, is unknown to the developer at the time of
making the application. The direct result of this condition was the
creation of funding conduits that were outside the typical bank transaction
envelope and created opportunities for new apartment developers to access the
capital they needed, provided they would also accept joint and several recourse,
corporate and individual.
Now this can all
change.
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