Structuring a Construction Loan
1h 4mGeneral2025-02-10
Authors
Corporate Finance Institute (CFI)
Course details
Learn about the factors that affect the structure of a loan for construction and real estate development. This course breaks down the line items of a construction budget and proforma then explains how to calculate the interest expense and maximum loan amount on the construction loan by examining the timing of spend of different line items from the construction budget. Examine quantitative and qualitative terms in the term sheet and how they affect the structure of the construction loan. Finally, this course builds out different construction development scenarios and looks at how loan repayment works in all these scenarios.
Learning objectives
Understand the line items in a developer’s budget and derive a risk-assessed loan-to-cost.
Review development and construction cash flows to calculate interest and financing fee values and funding mechanisms.
Determine how the price of debt ties into the budget and project evaluation.
Appreciate how qualitative loan terms can impact loan-to-cost and interest rates.
Calculate various take-out scenarios.
Examine how mezzanine debt and promote structures may fit into the total project assessment.
Learning objectives
Understand the line items in a developer’s budget and derive a risk-assessed loan-to-cost.
Review development and construction cash flows to calculate interest and financing fee values and funding mechanisms.
Determine how the price of debt ties into the budget and project evaluation.
Appreciate how qualitative loan terms can impact loan-to-cost and interest rates.
Calculate various take-out scenarios.
Examine how mezzanine debt and promote structures may fit into the total project assessment.
Skills covered
ConstructionAccounting SkillsFinance and AccountingAECOne-Off
Concepts
0. Introduction
- 01 - Course introduction
- 02 - High level considerations
- 03 - Terms and definitions
1. Reaching Loan-to-Cost
- 04 - Construction loan budget - Key components and analysis
- 05 - Land acquisition, due diligence, and closing costs
- 06 - Understanding soft costs in construction projects
- 07 - Fee structures in construction loans - An overview
- 08 - Types of fees in construction projects explained
- 09 - Land servicing costs and their role in loan structuring
- 10 - Hard costs - The largest expense in construction projects
- 11 - Financing options and strategies for construction projects
- 12 - Sales, marketing, and lease-up costs explained
- 13 - Miscellaneous costs in construction loan budgets
- 14 - Contingency planning for construction loan structuring
- 15 - Loan-to-cost roundup - Nuances in line items
- 16 - Loan-to-cost roundup - Differences in line items
- 17 - Loan-to-cost roundup - Other concepts and calculations
- 18 - Loan-to-cost roundup - Loan amount and required equity
2. Calculating Interest Expense
- 19 - Calculating interest during preconstruction
- 20 - Calculating interest during construction
- 21 - Calculating interest for pre-leasing, lease-up, stabilization, and sale
- 22 - Determining the maximum loan amount
- 23 - Midway check-in - Calculating interest expense
3. Qualitative Terms in the Term Sheet
- 24 - Understanding interest rates in construction loans
- 25 - Structuring interest payments in construction loans
4. Qualitative Terms in the Term Sheet
- 26 - Understanding loan-to-cost, interest rates, and tradeoffs
- 27 - Key qualitative terms in the term sheet
5. Construction Loan Repayment
- 28 - Development scenarios in construction loan repayment
- 29 - Build-to-sell units in real estate development
- 30 - Selling stabilized assets - Repayment strategies
- 31 - Take-out loans for construction loan repayment
6. Final Considerations
- 32 - Understanding the capital stack in construction
- 33 - Promote structures in real estate development
Conclusion
- 34 - Structuring a construction loan course summary