A phased unit delivery model in industrial condominium development requires a construction financing structure that is flexible, milestone-driven, and aligned with unit sales and absorption rates. This structure allows developers to fund infrastructure and vertical construction incrementally while minimizing financial exposure and synchronizing with market demand. Below are five critical components of a financing model tailored to phased delivery.
1. Land Acquisition and Pre-Development Loans
- Initial financing typically covers land purchase, site planning, entitlements, and permits.
- Lenders may issue loans secured by land value and project approvals.
- These funds also support surveys, engineering, and legal groundwork.
- Repayment often rolls into the broader construction loan at phase launch.
- Interest reserves may be built into the loan to cover early-stage interest costs.
2. Construction Loans with Draw Schedules
- A construction loan facility is structured with predefined draw schedules tied to milestones.
- Funding is released based on inspection-verified completion stages (e.g., grading, slab, shell).
- Separate draws are scheduled for infrastructure (roads, utilities) and building units.
- The loan amount is segmented to match each phase of development.
- Interest is paid only on disbursed amounts, improving cash flow management.
3. Pre-Sales and Buyer Deposits as Collateral Support
- Lenders may require a minimum number of pre-sold units in each phase before releasing funds.
- Buyer deposits (e.g., 10%-20%) are held in escrow and may count toward collateral value.
- Strong pre-sales reduce lender risk and may improve loan terms.
- Sales contracts must comply with lender’s escrow and refund requirements.
- In some cases, deposits are used to fund soft costs or marketing expenses.
4. Phase-Based Loan Structuring and Tranching
- Financing can be tranched by phase, with each phase having its own loan agreement.
- This approach isolates risk and provides flexibility to cancel or defer later phases.
- Loan-to-cost (LTC) and loan-to-value (LTV) ratios may vary by phase maturity.
- Developers can retire or refinance each tranche as the corresponding phase sells out.
- This modular financing is common in multi-acre or multi-building projects.
5. Permanent Take-Out or Condo Conversion Financing
- Upon substantial completion and sell-out of a phase, construction loans convert to long-term financing or are paid off from unit sales.
- Some lenders offer mini-perm financing that bridges construction and long-term hold periods.
- Condo conversion loans may also apply if initial construction was permitted as a single title.
- Take-out loans are often used for retained units or association-owned assets.
- End-financing terms may influence pricing strategies and development timelines.
