Commercial Development Pacific Investment Management Fund Funding: Tips for a Better Funding Source

Saturday , 6, May 2023 Leave a comment

Many undeveloped or partially developed properties are located along the Southern California Coast. Based on location alone, they seem to hold a wealth of opportunities. You can see Altura EC showflat for more information.

A few of my closest associates have had success as real estate developers throughout the Western United States and continue to tell me about their frustrations when it comes to securing project funding. Mitch, Newport Beach developer explained that “from receiving 70-90% of the cost for construction of an apartment development at only 5-8 % interest rate per year throughout the 90s to early 2000s until mid 2007, I have received offers from 20-30% of loan-to-cost financing.” This economy is now in a situation where the bank lending restrictions based on poor decision making and an “ask-and-you’ll receive loan” mentality through 2006 have left it at a point that even deserving projects will be turned down.

Many of these construction projects would create thousands upon thousands of construction positions. Pacific Investment Management Fund, an established private mortgage funds in Irvine California was contacted to find out directly the types of projects funded by this fund. Many private lenders, sometimes called “hard money” loan providers, are attempting fill in the gaps created by the cold credit markets. My two-hour long discussion with Mr. Joseph, as we sat on Pacific Investment’s mahogany conferencing table looking out over Newport Beach’s backbay, revealed the tips and guidelines he offered to those who were seeking financing for real estate development.

Brian Joseph Vice President, Lending Pacific Investment Management Fund.

1. Presenting your work is crucial. It is important to spend a few weeks preparing an executive summary that’s concise, organized and clear. It is essential to present the whole picture and the reasons why this particular property project was needed on a busy real estate market. In order to differentiate yourself, it is best to create a tidy and well-organized packet.

2. You can ask a CPA, Accountant or other professional to provide advice on the proformas you are preparing and/or the existing financial performance. These specific ratios should be included for every commercial project. They are: Debt Servicing Coverage Ratios, Return On Investment, Breakeven point and Vacancy rates using industry-standard low values.

3. Consider an appraisal that is conservative. There are too many appraisals done by retail clients and not wholesale lenders. Inflated values kill more projects than other factors. They should ask their appraisers for value estimates for clients who are buying wholesale. This allows the developer see real profit margins.

4. When you’re seeking a higher loan than the 65% based upon the projected value, but the client has only 35% on hand in cash, bring in an investor before trying to find financing. In order to get financing, it is crucial that you have someone on your side. As the client will usually take the majority of the profit it is essential that they agree to be equally responsible for the risk.

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