Commercial construction loan is a loan used to finance the construction of commercial property, such as office complexes, retail centers, apartments, hotels, warehouses, and other business properties. Construction loans are short-term and meant to be paid off when construction is completed.
While construction loan programs offer differing features, they also have a number of characteristics in common. For example, construction loans generally require interest only payments during construction; terms typically are for 12 to 36 months; most lenders require a 12-month interest reserve; and pay off occurs when a certificate of occupancy is issued.
Because borrowers usually require follow-on financing when a construction loan comes due, lenders sometimes offer construction-to-permanent loan programs that provide construction loans during the building phase and longer-term fixed-rate financing that kicks in upon issuance of the certificate of occupancy. This two-in-one loan process tends to be more convenient and less costly for borrowers in that there is only one loan application and one closing, with associated fees, instead of two.
Because of the complexity of construction loan financing, borrowers may find it difficult to compare construction-to-permanent loan financing with the two-loan process. That’s where the experts can help. The combined market-focused expertise of a Structured Finance Group and a Capital Markets Group, can take the guess work out of construction lending so that commercial real estate clients are able to secure the best possible interest rates and terms consistent with their objectives and market conditions at the time. Bottom line, is do your homework and be prepared.