The sight of whole new buildings and homes with no lights at night seem to be a pretty common sign of vacancy in many cities all across the United States. Such high vacancy is one of the reasons out why many banks don't seem to have a taste for structure loans anymore. Lately,these type of loans seem to have a very bad reputation. However, there are a a few points that I would like to clarify about construction loans.
1. Structure loans are being funded. Many banks have in their portfolio a extended number of nonperforming construction loans that don't qualify for everlasting financing. Therefore, they are not involved in funding any more of them. However, there are still lenders out there that will fund constructions loans.
2. Pre-leasing is essential. Strong pre-leasing and strong future tenants with deposits will make building loans a lot more feasible. This is the safest way to ensure not ending up with different empty nonperforming property and eventually a nonperforming loan.
3. Main financials serve. The financial strength of the leads is a ingredient that will make the project more attractive to the lender. If the property doesn't work as looked, there will be assets that will back up the loan.
4. Last experience is most-valuable. A reputable builder will have a much better time getting financing for a project than someone with proper experience.
5. Some projects are smoother to fund. Construction loans for residential units to be rented can really be done easily. In the other hand, construction of residential units to be sold is about impossible.
Builders are definitely not out of business. Even if their banker declines the funding of their projects, there are alternatives. As long as the project makes sense and there are renters in place to make the building a success, funding is executable. To build or not to build? Construct if you have tenants is the serve.