New Apartment Construction Financing - Commercial Real Estate Investor Syndicates

Over the last 25 to 30 years, the new apartment construction financing market was dominated by HUD pursuant to their loan insurance programs.  However; the popularity of the HUD programs have become the bane of their practical applicability.  The biggest issue is the processing timeframe.  In many markets, one can get a HUD insured loan processed in about six (6) months, while in other markets there are many cases of processing requiring a year or more to complete.

This brings up the issue of carrying costs; the hidden "opportunity tax" that developers have to be willing to pay in order to access non-recourse financing.

But, all of this is changing due to the advent of Internet-based syndication platforms (such as the realestateplays^sm platform run by our affiliate).  These programs allow the new apartment developer to obtain non-recourse construction financing simply by using the syndication approach to raise sufficient equity that would induce a commercial bank to make a non-recourse loan.

The differences are in the carrying costs.  Both approaches require 90 days for the production of the initial due diligence documentation required to sustain an application; but the HUD route requires significant capital outlays and the extended carrying cost burden, the size of which, is unknown to the developer at the time of making the application.  The direct result of this condition was the creation of funding conduits that were outside the typical bank transaction envelope and created opportunities for new apartment developers to access the capital they needed, provided they would also accept joint and several recourse, corporate and individual.

Now this can all change.