For our next location, I want to build a strip mall. Please help me understand how this works.
[deleted]
[{"id": "j1dq6tm", "text": "You're not going to get a one-time-close loan (OTC).  Find your land, get it under contract, go to your local bank, usually 70% max, then close on the land, soft costs aka approvals/permits, go to your bank with receipts and previous closing docs, get a construction loan (R&amp;T vary widely).\n\nMake sure you make the calls before you put the prop under contract that you CAN do what you want to do, like build, or correct zoning etc.\n\nTry to have 50% ready when you start this.  \n\nCash makes a stronger offer, but in a shitty down market on raw land, sellers aren't exactly calling the shots.", "replies": [], "depth": 1}, {"id": "j1dq8z2", "text": "I recommend that you find and talk to a few commercial real estate brokers.  You need to find someone who is reliable and experienced with these matters to walk you through the process. \n\nWhat you want to do makes perfect sense. But the answers to your several questions are long, and subject to a lot of \"but it depends on the individual situation\" detours. \n\nAfter you've done it once or twice, you may decide that you're capable of doing it on your own, or you might decide that you've found a competent professional to work with on an ongoing basis.\n\nGood luck either way.", "replies": [{"id": "j1ekji3", "text": "Commercial mortgage broker here - poster above is correct on all fronts. There are too many moving factors that change the landscape of structuring the deal depending on your individual scenario.   \nBest to reach out to a local broker and go from there.", "replies": [], "depth": 2}], "depth": 1}, {"id": "j1eabbm", "text": "Well said above. In general, lands are hard to finance because they risky assets in the eye of a lender. You have to buy finance land and construction separate if going to local banks. But there is always lenders out there that are willing to lend land plus construction money. Usually they are looking for an experienced builder or GC to do the project. So they are confident in the quality and timeline of the work. \nAnother option is to buy a already built strip mall and get a loan to rehab it. You\u2019re adding value and building what you wanted. \nI am a commercial mortgage broker. Let me know if you have any questions.", "replies": [], "depth": 1}, {"id": "j1eghgu", "text": "Find StripMallGuy on twitter", "replies": [{"id": "j1elgyn", "text": "He\u2019s a must-follow, but his posts don\u2019t deal with development or construction at all \u2014 I get the impression they buy existing strip centers and improve them with lease-up and operations.", "replies": [{"id": "j1f64f0", "text": "That was my impression too, but his got a lot of friends who do new development", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "j1fqeln", "text": "Not to be negative but if you have no experience in this area it is going to be hard to get financing. Commercial construction loans are high risk and in my experience banks are very hesitant to take that risk with someone with zero experience. I have been doing this for about 8 years and my first 4 projects I was lucky to partner with someone in the field who had the network and new what he was doing. By time I was ready to do my own project I had a feel for the process and had connections from banks, engineers, GCs etc which made it easier. Good luck!", "replies": [{"id": "j1fu558", "text": "Yeah, this is what I was going to suggest. Presumably they've got some experience in market research, so finding a usable site is within their skillset, but getting it entitled is going to require outsourcing, I would not recommend going that alone. And then yeah, unless they've got the cash on hand, getting financing is going to be nigh impossible with zero track record. Especially right now, I imagine. They'll need a partner. Maybe that does mean they don't end up as a the full owner of the completed project, but it's better than getting nowhere.\n\nSidenote, that Starbucks thread is not super relevant here. The argument that most commenters were making around that one is that Starbucks is an ironclad tenant, so with less risk, buyers will accept a lower cap rate, even in the face of negative leverage. Also the negative leverage wasn't relevant because the price tag was small enough that 1031 exchanges and other cash deals are possible. Most development has leverage involved.", "replies": [], "depth": 2}], "depth": 1}]