Currently conducting diligence on a Residential Debt Fund who would provide 60-70% Leverage to Homebuilders. While this is obviously a large subset lender industry, I am less familiar with the largest players in this space. Therefore, would be interested if anyone in this forum had some experience with who some of the larger Debt Funds, Land Banking Firms, and Commercial Banks are in this space.
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I can't personally give you specific lenders but just wanted to clarify to make sure we can all help you efficiently - when you say this debt fund is providing 60-70% leverage I am assuming that is the loan related to the land acquisition?
The absolute largest home builders are public so they can draw on that source of capital in order to keep their pipeline going. Home building at its best execution wise is an operating business and the "big boys" (DR Horton, KB Homes, etc.) all have broken down the process into such detailed steps that they may as well as be producing widgets.
Excluding these large players and assuming your operators are mid-sized, the most efficient form of financing is typically a combination between two different loan structures - a land acquisition loan paired with a revolving line of credit. The land acquisition loan typically covers the land acquisition, horizontal improvements, streets and other land related costs to get to "blue top" (land ready for vertical development). The vertical component (everything land up, "sticks and bricks") is financed via revolving line of credit to keep outstanding debt low - the line allows you to pull the limited funds needed for construction of the smaller phases of homes while limiting borrowing costs.
Thanks for the helpful follow-up. This would be a lending platform that would do Acquisition (Land), Development (Horizontal), and Construction (Vertical). It would fund over the life of the project and work as a line-of-credit as you described (e.g. fund during the initial construction -> pay down as the first homes are sold -> drawn on again as new phases are going vertical -> pay down as next homes are sold -> etc until final homes are sold).
To your point, large, public home-builders generally issue bonds and occasionally obtain lines-of-credit to fund their projects, so I imagine they wouldn't be the likely borrower. I imagine these would be large to mid-size non-public developers.
Ah I see, interesting business plan - what type of diligence are you doing? Is this for equity investment into the debt fund? What is the type of pricing do they provide for the line?
Unfortunately I do not have any resources to point you in the right direction but hopefully someone else can chime in.
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