Re: **Getting The Construction Loan**
From: David L. Mandel (
Date: Fri, 12 Jan 1996 01:36:36 -0600
John Major asks about how many "pre-sold" units impress the bank and Rob
Sandelin says it's money -- like 40 percent of the amount of the loan -- that
impresses them more.

We had raised among ourselves about $350,000 by the time we got our $1.9 million
bank construction loan. So that's less than 20 percent, and it was a tremendous
effort to raise that much. Forty percent sounds out of sight unless a group has
some very rich people in it. 

Moreover, the $1.9 million wasn't nearly enough; we got our loan in fall 1992,
when there was nearly zero construction being started, particularly condo
construction, so the bank was VERY conservative. I say THE bank because there
was only one, a locally owned savings bank (which has since been bought up by a
larger corporation, boo) that expressed serious interest at the time. Many
others turned us down.

We got the rest of the construction money we needed from the local housing
agency, which helped us because we were building in a depressed neighborhood it
cared about preserving and because we agreed to conditions that enabled a
certain number of low-income members to buy in. I'm not sure how to count this
help (about $750,000 in loans in all) -- as additional loans so that our
$350,000 was really more like 15 percent of the total -- or as additional
capital in the eyes of the commercial bank, which might have seen the total
leveraging capital as $1.1 million, more than 50 percent of the bank loan.

Regarding pre-sales: California law forbids actual sales of any real estate at
such an early stage in the project. But I believe the fact that we had 20
households (out of 25) at that point that had invested large amounts of money
and/or effort was instrumental in getting the bank to make the loan at such a
bad time. 

Finally, our construction loan application did emphasize the cohousing aspect as
a selling point. In retrospect, perhaps it would have been better to describe
the project as a vanilla condo development. On the other hand, it would have
been hard to explain the high level of commitment among future residents that
was a major selling point.

David Mandel, Southside Park, Sacramento

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