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What are some of the reasons why lenders, in most circumstances, will only offer relatively short,...

  1. What are some of the reasons why lenders, in most circumstances, will only offer relatively short, interest-only loans during the construction period of a ground-up real estate development project?
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Answer #1

Reasons lender offer short term interest only loans during construction period of ground up real estate development project :

1. Lenders dont want to put additional pressure on contractor to pay the principal and want them to focus on completion of contract timely.

2. Such loan can be closed in various ways. By refinancing the loan into long term. By selling the property and proceeds from sale used for repayments. Discounting the future rental payments from firm committed contract.

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