Can Developers Start Work Without Financing?

LAKE FOREST, CA—In unique situations where the borrower has confidence in the lender’s ability to perform, some developers feel safe in beginning constructionbefore financing is in place, Landmark Capital Advisors’ managing director Adam Deermount tells As we recently reported, the firm has completed a $100-million refinancing and development loan for Portola Center South, a 626-home community on a 95.5-acre site here, on behalf of SunRanch Capital Partners, a partnership between Sunrise Co. and Baldwin and Sons, two private residential community development companies based in the Western US. Development actually began before the restructured financing was completed. We spoke exclusively with Deermount about the transaction and the decision to move forward with development without a finalized financing plan. What was unique about this transaction for you?

Deermount: What was unique about this transaction was that it was a large, non-recourse development loan from a bank. There is not a lot of debt for land development in the market today. There is even less non-recourse land-development financing, and very little of that comes from bank lenders since so many have retreated from the land and development lending business. Is it typical for developers to begin work before all financing is in place?

Deermount: It’s somewhat unusual for a borrower to start physical development before the financing is in place, but this was a unique situation where builders were already under letter of intent, and the borrower had a lot of confidence in the lender’s ability to perform based on our track record with them. Please describe the market for non-recourse loans of this size.

Deermount: It’s still thin, but getting better. Portola Center South would have been extremely difficult to place a couple of years ago. What we are finding now is that lenders are open to doing these sorts of deals if it’s the right fit. In this case, we had an amazing piece of property with builders lined up and a very strong borrower. Having the right lender relationships is key since lenders typically have a relatively small bucket that they can use to lend on land and development deals. It’s important to know who is looking to put money out in the space at any given time. What else should our readers know about this transaction?

Deermount: There is debt capital available for good land development deals. You just need to know where to find it. Our team at Landmark is very grateful to have the opportunity to find capital for Sunrise Co. and Baldwin and Sons on Portola Center South.