Construction loans to start building on unentitled land
Thanks in advance - I have a partner that owns 2 acres of raw land, they have done work with an architect who guided them they CAN build a 41,000 SF building on the site. We have put together a comprehensive report and met with the city. What is the next step to move forward in securing a construction loan so that we may start the project and get the property entitled and shovel ready? Thanks in advance.
[{"id": "fc43q26", "text": "Do not do anything until everything is good with the city. You can work preliminary plans with bank but do not touch the land whatsoever until all is final.", "replies": [{"id": "fc4kdtt", "text": "This is important! Do not even have a shovel touch the ground before securing a construction loan. Even A&amp;E and other interested parties can file liens and complicate the loan process. It isn\u2019t impossible to get waivers if work has been done, but it makes the loan process much more difficult.\n\nBank will want to know full budget breakdown, proforma, assuming it is an income producing property and not owner occupied, the legal structure of the land and building holding company, GC, and if income property any preleases in place. \n\nAlso, Does your intended use conform with the adjacent properties?", "replies": [{"id": "fc5pw7c", "text": "I hope this message potentially saves him a huge headache and a lot of money...", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fc45yg2", "text": "Get your approvals through the city. Keep a rapport with a loan officer because you will need to prove financial capability.  Only get a commitment letter after approvals have been obtained, or slightly before the final meeting. Do not pay for appraisal or anything else before approvals are in hand.", "replies": [], "depth": 1}, {"id": "fc47am9", "text": "As you are working on getting approvals finalized, you should start assembling a package to submit to the lenders, including all relevant information on the deal, as well as you and your partner's financials.\n\nFor the deal: Agreement of sale from the land purchase, recent property tax/insurance bills, existing loan agreement / payoff (if applicable), construction budgets, plans permits, approvals, sources &amp; uses, market study, projected NOI, etc.\n\nFor your financials: 3 yrs tax returns, Personal Financial statements, bank/brokerage account statements, LLC corporate docs (if applicable),  bio/resume of you and your partner, schedule of owned real estate, etc.", "replies": [], "depth": 1}, {"id": "fc4g8pw", "text": "I'm sure the architect reviewed the existing zoning. Did he say that a 41,000SF bldg will fit but needs the entitlements? What did the City say? If you need to secure entitlements, a land use attorney and civil engineer should be next on your list. That process can easily take 12 months, so no need to worry about financing yet.", "replies": [{"id": "fc4o2a3", "text": "LOL happy cake day...  \nNot worried about all that...  \nHave questions about the financing - seeking tips etc.", "replies": [], "depth": 2}], "depth": 1}, {"id": "fc6tlqy", "text": "I'm not an expert on development and entitlement but have a reasonable amount of knowledge on those topics.  I'm a bit confused with some things in your post and feel like I need some more information.\n\nWhat type of building is proposed for the site?  Will it be owner-occupied or is this building to be leased or sold?\n\nYou mentioned an architect has said a 41,000 SF bldg can be built on the land.  To me, an architect is the expert on building codes but you really need a civil engineer &amp; possibly a planner to know what uses are legal for the site (you can't assume neighboring uses are permitted on your site), what percentage of the site is developable (are there wetlands, easements or other restrictions that limit development?), whether sufficient water and sewer capacity available, are there issues with impact fees or concurrency will you be required to pay for improvements to surrounding roads or drainage in the area).  \n\nFor example, though I am very familiar with zoning code in my county, I recently learned at a meeting that a site my organization is looking at to construct a small commercial building is subject to a special \"overlay\" district with greater setback requirements and exterior building appearance criteria.\n\nCouple of basic questions: when your partner acquired the site, did he do at least a Phase 1 environmental and get a survey done? If not, these should be done (they are not expensive) before you guys spend more money on the property.  If your  partner inherited the land or has owned it many, many years (essentially if no title insurance policy has been issued on the property in recent years), you should also get a title search (very inexpensive and you need one to get a survey done) to make sure there's nothing squirrely with the title.\n\nA good city planning department can be a lot of help to you.  Typically a planning department will issue a zoning determination letter for a small fee.  You should also ask them for the detailed steps needed to review and approve the use you plan for the site. \n\nYou mentioned the site needs to be \"entitled\".  Per my use of that term, it means your site needs a rezone.  Has the city indicated that a rezone is needed and if so, is the proposed use compatible with the city's comprehensive plan?  If you need a rezone and comp plan amendment, that is a long, expensive process. You may already know this, but a reason typically involves public hearings with the planning commission and then city council.  Neighboring property owners will received notice by mail and public notice signs will be posted on the site.  People may come to the meetings and voice objections to the use, especially if it will increase traffic significantly. \n\nYou can't get a construction loan until you have complete plans, including civil and architectural, or at least enough documentation to facilitate an appraisal, you will also need several diligence items, including the above mentioned environmental and survey.  You also can't get a construction loan if a rezoning is needed for your use.  \n\nAs far as I understand it, you can't use a construction loan to prepare for development as you are describing.  If a developer is purchasing a site, they typically do a sales contract subject to obtaining the approvals they need to develop, then the developer self-funds (I guess some may use business lines of credit for this?) the diligence process; those funds are down the crapper if the site is found to be unusable for the proposed use or the developer can't get approval for the use.\n\nIn your situation, where the site is already owned, perhaps your partner can get a loan secured by the land; it would have to be currently free and clear or have substantial equity for that to work.  Usually lenders will not loan as much on vacant land as they will a building.  \n\nYou may have already known some of this information, but I hope I was of help to you. It probably sounds like development is a gigantic PITA but I somehow enjoy digging through this process. if you have any questions I'll be glad to try to answer them.", "replies": [], "depth": 1}]