Regardless of whether you are doing new multi-family development, or Value-Add rehab projects, Understanding how your lender looks at Loan to Cost and Loan to Value ratios is critical to understanding and mitigating your risks in any multi-family deal that involves construction.
Having served on the Board of Directors and loan committee for a Chicago community bank that specialized in commercial real estate and construction lending from 2005 through 2010, I not only experienced the 2008 “Great Recession” first hand in my own development business, but had extensive experiencing helping our borrowers work their deals out.
Many of the bigger developers that came through that time in the market have now become very successful and are semi-retired. A lot of the smaller developers (and lenders) are not around today.
The vast majority of people doing these deals today did not have the benefit of experiencing the drop in values that came with the Great Recession.
This video can help you to understand. It’s all about values and capitalization!