Financing Developers Fee in a Construction Loan???
Hey guys - for construction loans, would a lender fund developers fee (consider it a soft cost and perhaps fund portion of it)? How likely is a lender to “reimburse” and count developer fee towards total cost?
[{"id": "hi9w6ax", "text": "If it\u2019s a development and a defined cost and line item as part of the project then yes. We do this all the time.", "replies": [], "depth": 1}, {"id": "hia2dgs", "text": "Yes^ I\u2019m a multi family direct lender", "replies": [{"id": "hicf5j2", "text": "Can you lend in California?", "replies": [], "depth": 2}], "depth": 1}, {"id": "hia2js3", "text": "Generally Yes, but the total amount of developer fees may be capped by the lender depending on the preleasing.", "replies": [], "depth": 1}, {"id": "hia2pdn", "text": "Depends on the lender, the overall project and its structure.\n\nYou're not going to be able to juice the budget with costs plus a 40% developer fee and expect a lender to fund 75% of it... but if it's 5% and call it a \"project mangement\" or \"construction supervision\" you might get it included if the other metrics are in line.\n\nThere is an long and sordid history of developer fees from the aughts... still a lot of institutional burned fingers around", "replies": [], "depth": 1}, {"id": "hia7qmb", "text": "Absolutely, however the developer fee may not be fully paid until the project is completed if the developer is also the borrower/guarantor/sponsor.", "replies": [], "depth": 1}, {"id": "hiahqt4", "text": "Yes, but depends on the lender. Some lenders will also let you contribute the dev fee as equity in the project. Private lenders will be the most flexible.", "replies": [{"id": "hibgxov", "text": "How does contributing the dev fee as equity work? What\u2019s the benefit and when do they get paid?", "replies": [], "depth": 2}], "depth": 1}, {"id": "hicozxd", "text": "Yes. Different lenders will have different caps on what percentage they are willing to do. Also may not let you bill more dev fee as a percentage of that line item compared to a percentage of project completion. Typically also there may be some retention amount.", "replies": [], "depth": 1}]