From the course: Construction Loan-in-Process

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Construction loan-in-process: Restructuring example

Construction loan-in-process: Restructuring example

From the course: Construction Loan-in-Process

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Construction loan-in-process: Restructuring example

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- [Instructor] Let's look at a restructuring example. Assume the project was 10 million, funded 30% equity and 70% debt. The land price is 1.5 million, soft costs and hard costs (sunk) 3 million. Total costs all in is therefore 4.5 million, 3 million of equity and 1.5 million of loan advances by the construction lender. In our case, let's assume we are building townhomes. The total programming is 50 townhomes. The cost per townhome is 200,000, with the expected selling price at project completion of 250,000. The developer was taking a staged approach to the townhome development. As such, only 20 townhomes are under construction, and are about 90% complete. With falling valuations, the expected sale price is now 215,000 per unit, but 10 units have already been presold at the 250,000. In this case, the developer needs 400,000 to complete the 20 units. We should also assume an extra 150,000 in fees and expenses for the increased monitoring, interest expense, and other reorganization…

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