Hi, I’m Tom Rodriguez, SVP, Construction Loan Officer at Community Bank of the Bay. I help first-time and experienced developers, contractors, and construction companies get the financing they need to build real estate projects.
If you are looking to fund your next real estate project, your head may be spinning with where and how to begin. Real estate projects require substantial time, planning, and capital but are ultimately rewarding once complete. Most real estate developers utilize acquisition and development (A&D loans) or construction loans to fund their projects and get a cash infusion for expenses. If it’s your first time looking for financing, you may have questions, and we’re here to help.
What is an Acquisition and Development Loan?
Acquisition and Development loans or A&D loans are often used by construction companies, real estate developers, and contractors to create new housing communities, single-family homes, and commercial buildings. Developers use an A&D loan when they need to purchase raw land that will then be developed — or improved — and then sold for a profit.
While the bank will be contributing a majority of the funds needed, the land developer is generally responsible for providing a down payment of 20-30% of the total project cost. Down payments help to lower the borrower’s risk to the bank. Banks also consider the location of the project, the real estate developer’s history with past developments, and the local economy. It may feel like considerable planning, but when you work with a local community development bank (or CDFI), like Community Bank of the Bay, you’ll find a financial partner willing to help meet your financial needs, no matter what your experience is.
What is a Construction Loan?
Unsurprisingly, developers use construction loans to finance the building of a real estate project. Constructions loans differ from A&D loans in that you don’t need financing to acquire the land. Instead, contractors and developers receive cash draws as the development of the project progresses versus in one lump sum at the close of the loan. As gains are made in the building, developers will need an influx of cash to pay for expenses such as labor and building materials and can make draws during those times.
Solutions through Community Bank of the Bay
Whether you need a Construction Loan, or an Acquisition and Development Loan, you will work closely with your lender for years. Any shifts in planning, or the market, may need to be discussed with your bank, and those conversations are much easier when you have a strong relationship with your Loan Officer.
The cornerstone of Community Bank of the Bay is relationship banking. With over 25 years of experience in real estate development in the Bay Area, CBB works to create long-lasting client relationships and is there every step of the way with you, until your project is complete.
If real estate development is in your future, learn more about how to get the financing you need today to start constructing your next project!
By Tom Rodriguez, SVP, Construction Loan Officer, Community Bank of the Bay