When you are underwriting a development deal, lets say mixed use ground up, how would you underwrite the transition to your permanent debt? Do you immediately lever the project with a permanent loan when you hit stabilization and take the proceeds (since a stabilized permanent loan usually much higher than your initial construction loan) and distribute that to investors? Or do you just extend your construction loan until you're ready to sell? I suppose this question depends on hold period, so one example would be with a 5 year hold and another with a 10 year hold.
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Hi CRESouth, whoops, looks like nobody chimed in here.... maybe one of these discussions below is relevant:
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Bump
It depends on the deal and situation. If your hold period is to sell when complete, you won’t show a refi, if you plan to Hold post completion, you’ll probably show a refi as your construction loan will be about due at the time of completion. Unless you plan to use an extension option on your construction loan.
Agree with pudding. Depends on timing. If you're selling at CO, then you'd assume a sale and pay off the construction. Otherwise, if you have a 10+ year time horizon/hold period, as an example, you'd refi to a permanent loan with a hopeful cash out equity distribution.
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