Construction Lending - Completion and Carry Guaranty Vs. Personal Guaranty
Trying to discern the difference here, as I am hearing from bridge lenders (non recourse construction lending programs) that having a completion and carry guaranty in many ways is the same level of protection as requiring "full recourse".
Using a real world example, if lender was non recourse but had completion and carry, borrower would be on the hook to deliver the property with cert of occupancy. But beyond that point, there would be no recourse to borrower?
At that point, lender's exposure is let's say $50M loan with $30M cash from borrower so $80M total cost basis. Market tanks, value of property drops to $40M. Lender can take back keys via deed in lieu or foreclosure, but can't go after borrower for the $10M deficiency. Is that correct? If loan had been 100% recourse, then lender would have right to pursue the deficiency.
I guess the above scenario where asset value plummets below lender's basis isn't as likely all things considered, especially if we are talking about a multifamily development.
What are the other main factors why a construction lender would require full recourse as opposed to simply completion and carry?
I would imagine it depends on the collateral risk. Condos for example, may not benefit a lender if you simply complete them as you have to sell them too. Repayment guaranty here protects lender from loss of capital, which is bound to occur if the condo units don’t sell and borrower defaults. Office is another product type I could see going this way in the near term, when lenders are willing to touch office again. Completing the asset simply isn’t enough—you have to lease it.
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