Case Study: Finding Value
A well established New Brunswick builder and developer was experiencing significant delays in securing construction financing for a new 36-unit condominium project in Moncton. The builder had many years’ experience in building and managing his own significant real estate portfolio comprising over 250 rental units throughout Atlantic Canada.
Faced with ongoing delays in securing financing with the major banks, the builder approached a mortgage broker to help him secure alternative construction financing. This mortgage broker had worked with HarbourEdge in the past and arranged a meeting with the builder, his financial advisor, and the decision makers at HarbourEdge.
We explained the mechanics of our loan process/service and also disclosed our construction financing rates and fees. Because this builder was used to traditional bank financing, he experienced a bit of sticker shock, to put it lightly. His project, however, was approved and ready to proceed without delay, complete with detailed drawings and budget.
When we reviewed his construction budget, we were immediately able to value-engineer a budgetary reduction of some $300,000. This reduction offset the higher financing costs and more importantly afforded him the opportunity to commence the project immediately rather than experience further delays while waiting for Bank approval.
Furthermore, when we explained how our construction mortgage advance/funding process worked, the builder quickly realized that he would be in receipt of construction draw funds on a scheduled monthly basis. This enabled him to negotiate better pricing from his trades, since he was able to guarantee that they would be paid directly by HarbourEdge on a specified date every month for work completed.
We cross-collateralized our debt with construction mortgages on an additional 140 units owned by the developer and commenced project funding immediately. Construction progressed more quickly than the builder had projected, enabling him to discharge the mortgage early, with no penalty, thus saving him further debt-servicing costs.
This kind of value proposition is typical of HarbourEdge. We have repeated almost the exact same construction mortgage scenario with numerous projects that we have funded to date.