Capital For Every Stage
For more than four decades, First National has originated, underwritten, closed and serviced commercial real estate mortgage loans, including financing for new construction, major renovation and substantial property improvements.
As a Principal Lender, First National evaluates construction financing directly. Each project is considered based upon the underlying real estate, sponsorship, borrower equity, development budget, construction team, market feasibility and proposed source of repayment.
Construction lending requires more than determining what a property may be worth when completed. The lender must also understand how the project will be built, funded and completed.
First National evaluates both the amount and source of borrower equity.
A complete project budget should account for acquisition or land basis, hard and soft construction costs, professional fees, financing and carrying costs, reserves, contingencies and other material expenditures.
The objective is to determine that the project is appropriately capitalized and sufficient funds are available to complete construction.
Construction underwriting considers the entire project. Depending upon the transaction, First National may evaluate:
Where an appraisal is required, it is ordered directly by First National. Depending upon the project, valuation may include current as-is value and anticipated value following completion and stabilization.
Construction proceeds are advanced as the project progresses and remain subject to the loan documents and First National’s approval.
Where applicable, construction progress, improvements and draw-related matters are reviewed by an unrelated third party approved by First National.
Draw administration may include review of work completed, project costs, change orders, lien and title matters, remaining contingency and the amount required to complete construction.
Preparing for construction financing starts with understanding what a lender will evaluate. Our complimentary guide covers project cost and borrower equity, budget and plans, appraisal and valuation, draw controls and the exit strategy after completion.
It also outlines the initial review package to help you organize the information typically needed before starting a financing conversation.
A completed income-producing property can generally be evaluated using its existing condition, operating history, income and market value. Construction lending requires the lender to evaluate a property that does not yet fully exist.
That makes execution and capitalization particularly important.
The lender needs to understand what the sponsor has actually invested, whether the construction budget is complete, whether adequate contingency exists and whether the development team has the experience necessary to execute the project.
Projected completed value is important, but it does not eliminate construction risk. Plans, permits, contractor experience, cost controls and sufficient capital to address unforeseen expenses all contribute to the credit decision.
The lender must also understand the exit strategy before making the loan. Completion itself does not repay construction financing. The anticipated permanent financing, refinancing, sale or other repayment source must be credible.
For First National, construction underwriting therefore considers both value and execution: what the completed property may be worth and whether the sponsor has the experience, equity, resources and business plan necessary to complete it.
A borrower or representative should generally be prepared to provide:
First National begins with an initial review of the project, sponsorship, requested financing and economics.
When appropriate, First National may proceed to a legally binding Letter of Intent (LOI). Formal underwriting and due diligence follow, including the appraisal and other required third-party reports, project documentation, financial review and final credit approval.
First National welcomes the opportunity to review qualified commercial construction and major renovation financing requests.
An initial discussion should address the property, requested loan amount, total project cost, borrower equity, current project status, sponsorship and proposed repayment strategy.
A bridge loan is short-term financing intended to provide capital during a defined transitional period before a property reaches its next financing, operating or ownership stage.
First National’s minimum bridge loan amount is $7 million. Typical bridge loans are approximately $10 million to $15 million, although every transaction is individually evaluated.
First National considers 12-, 24- and 36-month bridge loan terms.
First National’s typical bridge loan-to-value is approximately 60%, subject to underwriting and the individual transaction.
Bridge loans are generally structured on an adjustable-rate basis.
Depending upon the transaction, a bridge loan may include an interest-only or accruing-interest structure.
First National may consider bridge financing for acquisitions, capital improvements, debt consolidation and other qualified transitional financing requirements.
A bridge loan has a defined maturity. First National therefore evaluates how the borrower expects to repay the loan and what must occur during the bridge period to make that repayment strategy credible.
First National generally prefers bridge-loan collateral located in or near major metropolitan markets. Each transaction is evaluated individually.
Any appraisal relied upon by First National in making its lending decision is ordered directly by First National.
