Cohousing-L Mailing List: Re: Construction Loan Financing (fwd)

[Jim Snyder-Grant (danasg]

Comments on construction loan questions raised by Gilda Iriarte and Phillip
W. Bush. This is Jim Snyder-Grant from New View cohousing (Acton MA)

>1. What kind of personal guarantees were required?  From whom? How were
>they structured?  Were the personal guarantees unlimited (covering all the
>assets of the individual) or limited and for how much ? 

Our land purchase/construction loans had unlimited personal guarantees that
all members signed. It had the usual scary language about how the bank
could go after any individual for as much as they wanted it anything went
south. The loan amount being way way over the average members net worth,
this was scary.  We countered this with an agreement drafted by our lawyer
between all of us partners that if the bank got money from any of us
because of a default, we would compensate each other to even out the losses
equally for every household. 

>2. What was the pre-sale requirement ?  
>

I do not remember. Maybe it was 80%? of houses having buyers? We were the
only cohousing group in the Boston area that had actually had land, so we
had no problem recruiting people. At one point we had to write funny P&S
agreements to prove that people wanted to buy houses, with language that
said that the estimated prices 'might change'. They sure did...

>3. Did you build the project in stages (to minimize the Bank's exposure)?
>If you staged it, how did it affect construction costs ?

Not formally, but we did need to create a cash flow agreement with the
builder and the bank. The loan was structured as a single line of credit,
and the max credit limit was well below the total construction cost. The
construction was scheduled in such a way that some closings were before
others, which helped pay down the credit line. Since were paying interest
only on the outstanding portions of the credit line, interest costs were a
bit less this way.  Construction took longer than planned, which increased
costs in a variety of ways, but this was unrelated to our financing strategy.


>4. How much equity participation did the Bank require (of the total
>project cost) ? 

Approximately 20% of total projected costs. So, in effect, on average, each
household had put down a typical downpayment before construction started.

>5. What other issues were important in structuring the loan ?

There was a complex agreement with the town & the bank, because the town
wanted some of the cash to be held in bond, until town permitting
agreements were met.  Most of that cash has come back to us, but even now,
three years after construction, there are some minor issues still to be
resolved that are holding up a few thousand dollars.

>6. What Bank or Banks were involved ?

The Cooperative Bank, of COncord MA

>I am structuring a construction loan request for Synergy Cohousing and
>would appreciate your comments and suggestions.  We don't have a developer
>with deep pockets, so we have to get very creative. 
>
>Thank you.
>Gilda Iriarte (email:iriarte [at] herald.infi.net)
>
>

And then Phillip asked about condo/coop. etc.

Our bank & other banks in MA, appraise coops as if they are rental housing,
which is way way less than the appraisals that condos get. So, unless we
were willing to fork over some big percent up front (40%?) we had to go condo.

-Jim Snyder-Grant, using my wife's email to belong to cohousing-l. It is
more relaible to reach me at
jimsg [at] newview.org (home)
or
Jim_Snyder-Grant [at] lotus.com (work)