I work for a shop that frequently acts as a senior lender for construction loans on development projects. Our capital is all private equity, focusing mostly on multifamily.
On average the interest rates we charge on our bridge loans will be 200 bps higher than banks or other institutional lenders. Our developers say that they are fine with paying the higher interest rates than a competitor would charge because we can fund draw requests much quicker.
Usually our turn around time from when they send in the AIA sheets with funding requests to receipt of wire transfer is <2 weeks. GPs pay the higher interest rate so that they can pay their subs quicker, finish the project sooner.
Development guys, what is your usual turnaround time on draws? 1-2 months from institutional lenders seems long, and wanted to confirm if this is in fact the norm. Cheers
I'm at a high yield shop and we are ~2 weeks as well. Usually the high yield shops that take longer is because they are trying to table fund with their leverage.
Institutional/life co/bank is usually ~1 month, but since most loan only allow for 1 draw a month, it isn't really a problem.
Typically ~1 month but we would certainly not pay an additional 200bps just to get draw requests funded more quickly... Other terms would need to be more favorable if the spread was that much higher.
For market rate deals with traditional construction lenders? 1-3 weeks, assuming you actually have your shit right on your draw request. Obviously making a mistake can add days or weeks while you try and sort it out.
I've honestly never heard of a lender that would take that long to fund a draw request, nor have I heard of a GC who would be willing to accept such delayed payment. How the hell do you construct a building if you're running 2 months behind on paying your subs? For a month here or there during the construction process sure, someone will take delayed payment for a week or two... but with delays like that you're going to run into the fundamental issue of employing someone; that if you don't pay them, they won't work.
2-4 weeks is standard, if everything is in order.
Bank construction lending standard is 1 draw a month. Usually the bank draw happens more or less within the same timeframe during the duration of the project. Of course exceptions take place depending on the project and a relationship. Although higher cost of debt, the debt funds are usually more flexible with the draws with 2 to 3 weeks turn around. I've seen debt funds pre-fund up to 50% of CapEx on bridge loans to a strong borrower and process a draw as fast as 10 calendar days so the developer could buy-out critical path materials and a subcontractor (to avoid a potential costly delay). It helps a lot if the construction monitoring department is in-house and not outsourced. Hope this is helpful.
Uh, no developer is paying 200 bps of extra spread to have draws funded faster. You’re getting that spread because banks won’t finance your deals.
Right, just bear in mind that most banks are recourse lenders, whereas, debt funds are usually no recourse. Many company owners prefer non recourse and do not mind paying the spread, coupled with more flexible/frequent draw funding - more than one reason debt funds are in business with higher cost of capital than banks.
Every single lender I've ever worked with funds within ~2 weeks, and most of that lead time is the turnaround on title/inspection. I can't imagine working with a lender that takes longer than that, let alone 1-2 months. Most AIA contracts require payment by the end of the following month.
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The whole point of going to a debt fund is non recourse financing or at least limited recourse with construction completion guarantee only or burn offs
I work for a shop that capitalizes developers but fairly involved. Time is usually a month but they keep working capital so there’s nothing a lot of clog
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