Landing Your First Construction Loan
A 4-step framework for communicating your project to lenders (and investors).
Hey. Welcome to the next edition of Small-Scale Sunday (although, yes, it’s Tuesday) from Brick + Mortar where small-scale developers get actionable tips on acquisition, financing, design, construction, or operations.
Landing your first construction loan can be a daunting task.
But it doesn’t have to be.
I closed my first one this past January. With minimal construction experience, I went in seeking a $700,000 loan to build a $1M mixed-use project at 501 Main. And I positioned myself as the general contractor.
You might think that’s crazy.
Why would anyone lend money to an unemployed and unexperienced dreamer looking to develop (and GC) his first project?
The reason was two-fold. Specifically, I was able to:
Build a compelling narrative around my project; and
Demonstrate my ability to lead it to successful completion
To do that, I created a pitch deck.
Pitch because I was literally pitching myself (and my project) to someone else. And deck because it was a 20-slide PowerPoint deck.
I spent hours coming up with a framework that I thought best established authority and a convincing story.
Here are the 4 steps:
EDUCATE the reader—why does the area need this type of project?
CREDENTIALIZE yourself—why are you the right person/team to get the job done?
DESCRIBE the project—what are you proposing?
ANALYZE the financials—does the project make sense financially?
Prepare these four sections well and lenders will have a tough time casting you away.
Let’s dive in.
Step 1: Educate
Everyone loves a good story.
So give it to them.
Use the initial slides to set the stage—give the reader historical context and paint a vivid picture of your town, neighborhood, or city.
You want the reader to leave this section believing in the future of your market area.
Some ideas of what to include:
Background and history of the area
Demographic data
Key housing and commerce statistics
References to town and community studies that demonstrate need
Recent development and community projects in the vicinity
Here are a few slides from my pitch deck:
Remind the reader why they should care and then convince them that the area merits investment.
Use a mix of storytelling and quantifiable metrics. Be data-driven and link to sources where possible.
Step 2: Contextualize
Now is the chance to highlight your resume. Convince the reader that you have what it takes to develop a successful project.
Relevant project experience in construction, finance, and development is welcome. So play that up where you can.
It also helps to have your team assembled of architects, engineers, contractors, and property management.
Not only is this critical to establish an accurate budget. But it will also communicate that you are serious about the project and have kicked the process off.
Architecture comes first—you’ll need some sort of schematic design and site plan to get the other trades on board and ready to estimate.
Then, socialize plans with contractors. Use this as an opportunity to network and collect directional pricing (i.e. rough $/SF) on project components.
Having professional property management lined up gives you an advantage. Yes, you probably could manage a small building on your own. But you’ll want to take a deep look at whether that’s something you’ll have the capacity to tackle.
Also—handing over property management to a professional will instill more confidence in your plan by lenders. They want to know you’re preparing a smoothly-run operation.
Here’s the team slide I made. Add pictures as needed.
Step 3: Describe
Next, lay out the details of the planned project.
Unit count, sizes, renderings, floor plans, you name it.
Ensure the reader fully grasps what you’re proposing when they read through the content. The pitch deck will likely be shared around when you’re not in the room.
Don’t leave anything open for interpretation.
And highlight noteworthy differentiators. For me, that included my focus on energy efficiency—air sealing, insulation, and high performance mechanical systems.
Also—bonus points for including a timeline:
Step 4: Analyze
This is the meat of the pitch.
If you’re not comfortable with numbers, you need to be.
Ultimately, the project needs to make sense financially. And lenders (and investors) are going to pick the numbers apart.
Not only do you need to present it in a digestible way—but you’ll want to make sure you know the numbers inside and out for when (not if) you get asked questions.
At a minimum, you’ll want to include:
Unit mix—type, size, and projected rent roll
Comparable rentals—similar apartments in the area and their rents
5-year pro forma—projection of rents collected, operating expenses, and net operating income
Scope of work and construction budget—details on costs for various categories (e.g. windows & doors)
Capital sources and uses—where your funding is coming from and how you plan to spend it (see below)
Financing sought—how much you’re asking from the lender. Include the debt service coverage ratio (DSCR) here
I made one slide per topic. Here’s an example of sources and uses:
So there you have it.
It may sound complicated but don’t be deterred.
The process of assembling a kickass pitch deck is a great exercise. In doing so, you’ll refine scope, iron out kinks, and discover opportunities for improvement.
It’s one thing to have a great idea in your head. But you’ll develop a deeper understanding of your project when you consolidate it into a consumable, written product.
By the end, you’ll be an expert.
And it will be unwaveringly apparent in the way you’re able to communicate the details.
People will take you more seriously. As a result, you’ll start with a leg up in conversations with lenders and investors.
If you’d like a copy of the full pitch deck I created for 501 Main, send me a note by replying to this email. At the very least, it may serve as a good template.
Until next week,
— Jonah 🧱
P.S. Want to connect? Find me on LinkedIn and my projects on Instagram.