Since 1997, Apartment Loan Store has specialized in non-recourse commercial lending and non-recourse construction loan financing nationally. We have non-recourse loans available in your market. Call us to discuss which non-recourse loan program is right for your development.
If you have tried getting a national, regional or community bank to do non-recourse you have likely gotten an emphatic “NO”. This is because recourse is mandated by the FDIC with the exception of very low loan to value transactions of 50% LTV or less. It is especially difficult to obtain a non-recourse construction loan because of the risk of non-completion. Uncompleted construction projects usually take years of litigation and almost always result in a large loss of time and money for the construction lender. Because of this risk almost all non-recourse construction lenders require that the key principals sign a completion guarantee. To learn more about a completion guarantee this is an excellent article:
So why should you go through the effort to obtain a non-recourse construction loan? Recourse loans require a personal guarantee which in the event of a default could put a judgment against any of your personal assets including bank and security accounts. Non- recourse loans are not guaranteed personally. They do however require the key principals to sign what is called the “bad boy carve outs”. This is a document that essentially states that if the key principals have committed fraud in the loan submission, future financial reporting, or declare bankruptcy on the single asset ownership entity that owns the property that the loan reverts to a recourse loan.
Benefits of a Non-Recourse Construction Loan
- Attracting Investors – If you are a developer seeking equity partners or investors on your project, obtaining a non-recourse construction loan is a must. You will likely be using a high net worth investor. Why should he/she take the risk of putting money into your project if they are also risking getting a judgment against their personal assets in the case of a default by the construction lender?
- No Personal Guarantees – We have already gone into this one above, but also keep in mind that banks like to over guarantee the loan and often require that each key principal guarantee 100% of the loan. Of course you can negotiate with them on this but in most cases the key principals will have guarantee the loan over 100% together.
- Upon the Loan being Assumed on Sale of the property – Bank loans will usually require that the key principals selling the property still be responsible for the loan should there be a default by the buyers.
- For Estate Planning – On a recourse bank loan if a key principal dies and the financial strength of the heirs does not meet the banks qualifications, the bank can call the loan due and in full. On a non-recourse loan the loan is made to a single asset entity like an LLC, and because there is no personal guarantee involved the loan cannot be called should the heirs not qualify.
Call one of our friendly and highly experienced loan specialists to discuss which non-recourse construction loan is right for you: 503-376-7303
You can also go to this page for the guidelines and requirements for our non-recourse loans: