Working on a construction loan where the sponsor is contributing land at market value. Let's call it $1,000,000 in value. There is a loan paydown of say $900k that will be released at the closing of the construction loan. How would each of these items be shown in a sources & uses?
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Based on the most helpful WSO content, here's how you can structure the Sources & Uses table for a construction loan where the sponsor is contributing land at market value:
Sources
Uses
This setup ensures that the land contribution is properly accounted for as a source of equity from the sponsor, while the loan paydown is shown as a use of funds. The total sources and uses should balance at $1,900,000.
Sources: Development Model - Construction Loan + Mezz, How do you compute IRR without any negative cash flows?, Calling all people in Development
Sources: Debt:?? Land equity:$100k Cash equity: ??
Uses: Land loan repayment: $900k Land equity:$100k
The real question is what is their cost basis compared to the market value. Would show this differently in that case.
Sources:
Debt:??
Land equity:$100k
Cash equity: ??
Uses:
Land loan repayment: $900k
Land equity:$100k
The real question is what is their cost basis compared to the market value. Would show this differently in that case.
Get the cash cost of the land (what they actually paid) and then show the difference between that and the market value- that’s the “imputed” equity.
This is the way - need to show what cost is and what markup is as “imputed equity”
Why does it matter what the seller paid?
Setting aside the loan paydown in this ex., if you agree land = $1m then seller contributes land to jv and gets $1m cap account credit, right? Doesn't matter if they paid 50k or 500k other than for their own taxes
Land cost 900k
Land surplus 100k
Assuming lender accepts land value of 1m
Typically you’d show the land value as a sponsor equity contribution under “Sources,” and the loan paydown as a “Use.” This way, the capital stack reflects both the contributed equity (land) and the cash flow used to retire existing debt before funding the new construction loan.
Good question, this comes up a lot in real estate modeling. When land is contributed instead of purchased, you should still show its value in the Sources & Uses so that everything balances. Typically, the land’s fair market value appears on both sides: as a Land Contribution under “Sources” and as Land Cost under “Uses.”
This way, you’re properly accounting for the value being brought into the deal, even though no cash is changing hands. It also helps lenders and investors see the full capital structure clearly.
In your definition, what would be the $, Gross for "Sources" and "Uses"?
Think of “Sources and Uses” like a financial snapshot of money coming in and money going out.
“Gross” just means the full amounts, before any adjustments or deductions, the big picture of cash moving in and out.
I'm asking for the "$, Gross" as in the dollar figures you'd use in this specific scenario.
Got it, thanks for clarifying! The dollar figures would depend on the appraised land value and how it’s being contributed within the capital stack.
man obviously in this example from the post...holy shit
Really helpful discussion, showing a land contribution properly in Sources & Uses can be tricky, and your breakdown makes it much clearer. Appreciate the practical insights from everyone who shared their experience!
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