Problem
A. What are holdbacks in construction lending? Why is the practice of holdbacks used?
B. What are some unique risks of real estate development?
C. List 3 things a developer can do to lessen the risk to a construction lender?
You are building a 10-lot subdivision with a total cost of $5,000,000. You have obtained a $4,000,000 construction loan. The lender requires an accelerated repayment of the loan at 125% of the per lot loan amount. Assume all lots will sell for $600,000, lot sales don't start until all development is complete, the loan is fully funded, and the loan amount includes all accrued interest.
• Prepare (post) a Repayment schedule.
• What lot sale will pay off the loan?