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May 31, 2024
9 Free Financial Modeling Lessons
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
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I would like one as well if anyone is willing to help
Bump! Any help would be much appreciated.
What’s so complicated about a construction loan that you can’t figure out yourself?
Did one for an entry level commercial lending role, from what I recall pretty simple but don’t have on hand anymore.
First step is sizing the loan. Given projected NOI, exit cap rate, and DSCR what is the maximum LTV you can give.
Given project costs and a timeline of project costs (may need to forecast yourself), calculate when developer gets all required equity in. Once equity is in, construction loan kicks in. What are the monthly draws from the loan and interest. Then at stabilization and assuming project is sold, show the proceeds paying off the loan and remaining to equity. Then calculate total IRR of project, the equity, and the loan. Plus sources and uses table.
Should be ready for some nuances though. Some things off the top of my head: If you’re assuming developer is also an operator and will manage property post stabilization, may need to model a takeout loan. There may be a monthly draw cap on loan. Calculating a pre-interest project costs and post-interest project cost line to work around circularity of leverage calcs. Using the NOI from construction completion to occupancy to offset interest costs. If land loan used on land, show payoff of land loan with the construction loan. If there is mezz in the cap stack, how does that effect loan. Etc etc..
Think this should be enough to create your own case study with some simple numbers to practice with.
Have never worked on development deals before, so this was really helpful. Thank you!
Good luck! I just remembered I used this model you can download to prepare which might be helpful: https://www.adventuresincre.com/construction-draw-interest-calculation-….
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