Homebuilder Construction Loan Note Investment FAQs

Syndicated Residential/Multifamily Development & Construction Loan Note Investment Frequently Asked Questions

 IMPORTANT: Please take a moment to review all the frequently asked questions and answers contained in this packet. As originated by BCCG, you will notice that private syndicated commercial mortgage loans combine certain aspects of hard money lending, institutional mortgage banking, real estate private placements, and Collateralized Mortgage Obligations (“CMOs”). Therefore, you must understand who we are, what we do, how we do it, and how we work with private investors.

Investing in a syndicated commercial real estate construction and development loan originating from BCCG is simpler than executing a stock purchase agreement.

By investing in the loans that we originate, you agree to “fractionally” and “collectively” participate in funding that loan alongside other willing investors who have executed the same loan participation agreement as you would. No single/sole investment firm/family office is ever required to fund an entire loan investment unless they desire to.

Who Is Builders Commercial Capital Group, LLC (BCCG)?

BCCG is a commercial mortgage firm specializing in the origination and placement of commercial and residential land acquisition, development, and construction loans. The president/CEO of BCCG is Mrs. Melinda Gladney-Lawson, an experienced commercial mortgage loan underwriter with seven years of experience. The company’s senior loan officer and investor relations coordinator is William J. Emerson, who has several years of commercial mortgage brokerage experience working with banks, lenders, investors, and commercial finance companies.

How does BCCG raise capital to finance its development and construction loan portfolio?

Private investors (individuals and investment firms) fund the loans originated by BCCG and slash or institutional real estate investment sources. BCCG uses the process of “Loan Syndication” to divide commercial real estate loan requests into smaller “loan participation units (LPNs),” which are merely fractional mortgage investment shares, to accommodate the varying investment parameters, preferences, and liquidity of multiple investors who consider participating. Multifamily development and construction loan amounts range from $250,000 to $150,000,000. So, to finance a $25,000,000 loan request, we would sell 25 loan participation units at $1,000,000 each.

Is There a Market Demand for New Construction Projects?

Yes. Newly built properties of single-family subdivisions, townhomes, and condominiums are going up coast-to-coast and, in the process, are driving a surge in the housing markets, creating consistent jobs for the building trades, and stimulating regional economies.

What is the Short-Term Construction Loan Investment Life Cycle (For a Condominium Project)?

1. A local real estate developer has city-approved plans to build an 80-unit condominium property.
2. After his initial project planning due diligence, he submits a loan application to BCCG.
3. BCCG performs complete independent due diligence for the subject property, which involves obtaining a title report, home inspection report, construction estimate, and an “after-repair-value (ARV) appraisal.
4. The exhibits are compiled into a formal “investment summary” for review and consideration by BCCG’s group of registered private investors.
5. BCCG successfully obtains executed Note Investment Participation Agreements from the investors.
6. As per the investors’ investment participation commitment, they deposit their participation funds into the escrow account at the title company, closing the investment.
7. BCCG obtains “escrow clearance” from the title company’s escrow agent, stating that the investment participation funds have cleared escrow. BCCG’s attorney then drafts the loan closing documents and schedules the closing.
8. On the loan closing date, the investor’s participation funds are released out of escrow to fund the investment according to a predetermined disbursement schedule agreed upon between BCCG, the title company, and the general contractor. NOTE: BCCG uses a third-party construction project disbursement management company for “funds control” to manage the disbursement schedule to the general contractor.
9. according to the executed “construction management agreement” with the builder, the general contractor oversees the rehab project.
10. The subcontractors contribute their respective labor toward the rehab project as it progresses to completion.
11. The rehabbed home passes inspection and obtains a certificate of occupancy, which is necessary to market it for resale. Additionally, the home undergoes interior design/decorating, exterior landscaping, and staging.
12. Meanwhile, the loan servicing company collects the builder’s monthly investment payments (out of escrow).
13. The collected funds are disbursed to the investors according to their pro rata stake in the new construction commercial mortgage note.
14. Several aggressive marketing and promotional campaigns led by the real estate agent/broker generate several “walkthrough” tours by several interested, qualified, and motivated potential homebuyers.
15. The successful marketing efforts of the home tours result in a couple entering a contract to buy the house (at the builder’s negotiated price) through the real estate broker.
16. On the day of closing, the house is sold to the buyer, and they obtain both the deed and the keys to the property.
17. The title company transfers the cash proceeds of the sale (sufficient to pay off the principal loan investment amount PLUS the contractual due-on-sale interest payment) to the loan servicing company.
18. The loan servicing company remits the payment of principal investment with interest (the investors’ due-on-sale premium rate of return).
19. The title company remits the remaining proceeds from the sale to the /borrower.
20. The borrower returns to BCCG to finance his next project, and the loan investment lifecycle repeats itself.

How is BCCG compensated for successfully funding its loan requests?

BCCG charges a one-time loan origination fee of 2-5% of the amount, which is typically written into the closing costs of every loan we successfully fund. For example, a $100,000 loan would have a 5% origination fee of $5,000 added to the loan amount. Thus, the adjusted loan amount (before the closing course) becomes $105,000. BCCG’s origination fees are always added to the loan amount and are fully disclosed in all borrower and investor correspondence and loan commitment documentation.

Who Are the Parties Involved in A New Construction Project/Loan?

There are several parties involved in a new construction project, and BCCG is always proud and ready to interact with the following:

• A LAND DEVELOPER (THE “SELLER”): This party owns the subject property and has entered a contract with the borrower/borrowing entity.
• THE BUILDER/BORROWING ENTITY: The party that owns the subject property for refinancing or improvements).
• LICENSED AND EXPERIENCED RESIDENTIAL REAL ESTATE APPRAISERS: The commercial real estate practitioner performing a current market analysis and feasibility of the subject property’s value and merit as the proposed subject property of the underlying commercial real estate loan originated by BCCG.
• LICENSED BONDED & INSURED GENERAL CONTRACTORS: These are the parties that BCCG attaches to a project to provide and review the construction estimates, the construction budget, and the construction disbursement schedules, execute the permitting process, and oversee both the construction project and its completion on time and within budget.
• CONSTRUCTION SITE INSPECTORS: We use local licensed construction site inspectors in the immediate locale of any rehab/construction site who will report on the progress of the work, the appropriation of the previous disbursement, and provide recommendations/confirmation to release the next construction draw disbursement to the general contractor. This is important in providing “builder’s control” because it prevents the general contractor from running off with a lump sum of money without doing the
• LICENSED BONDED AND INSURED TITLE/ESCROW COMPANIES: This real estate service provider performs complete due diligence on the title history and is hired by BCCG to ensure no hidden or unknown problems with transferring the property title or Many times, a title company is associated with a legal firm. The title company is also the escrow agent that holds all investor funds in escrow at a local bank until all the requisite participation, funding, and closing requirements and conditions are met.
• REAL ESTATE ATTORNEY: We use a real estate attorney to draft all our loan participation documents, closing documents, and contracts with all parties involved in a New Construction loan.
• REAL ESTATE BROKER/AGENT: In addition to the entity that may represent the borrowing entity on the initial purchase of the subject property, we often engage a real estate brokerage firm that has extensive success aggressively marketing new home communities. This is part of the exit strategy that ensures the return on your investment.
• LICENSED RESIDENTIAL HOME INSPECTORS: These are the licensed professionals who specialize in inspecting the newly built inventory to ensure that the homes qualify to obtain a certificate of occupancy, which certifies that the finished project is suitable for immediate sale.
• PROSPECTIVE INVESTORS: These “silent lenders/partners” provide the needed funds for BCCG to successfully fund and close each homebuilder construction loan. Loan note investments are presented to each “registered” investor according to their predetermined and specified terms under which they will participate in the loan.
• CASH (OR PREAPPROVED) HOME BUYERS: This is how the property gets Cash buyers or preapproved buyers with loan approval in place are the individuals who buy the rehabbed properties upon completion of the rehab work. Some of our project partners have pre-existing buyers under contract. In contrast, others have real estate agents that market the properties in a predefined marketing period to sell the properties in the open market. Many of our borrowers are experienced and sophisticated in attracting buyers to their properties. Therefore, we usually impose a maximum loan term of six months to completely rehab and resell the property with minimal nonperformance risk on the borrower’s part.

Does BCCG Require a Project to Be Professionally Marketed and Promoted?

BCCG requires that all home builders and developers engage the services of a qualified and experienced real estate brokerage/sales professional who can devise and implement a successful advertising and promotional campaign for the development project or subdivision to generate enough sales necessary to pay off the loan and to satisfy the builder’s financial goals.

How Does BCCG Manage the Entire New Construction Loan Engagement?

• INITIAL LOAN APPLICATION INTAKE: We are the direct contact for initial dialogue with prospective or repeat borrowers looking for New Construction financing. We take a completed application; request supported exhibits and documentation, negotiate the initial loan terms with the borrower, and get their signed acceptance before underwriting and submitting the project for investor review and consideration. This is a significant step because having the borrower compliant with the terms makes for seamless negotiations between the borrower and the investor before closing the loan.
• UNDERWRITING: This is the stage in packaging the loan in which we determine the interest rate, the loan term, the closing time frame, the final gross loan amount, the loan origination fee, the investor points, and the lump sum interest reserve payment, targeted resale price of the property, minimum ARV appraisal parameters, construction/rehab budget, closing costs and closing date.
• DUE DILIGENCE: Now that we have underwritten the project and built a loan file, we order a title report, a pre-construction site inspection report, an ARV appraisal or real estate broker price opinion (BPO), the construction estimate, and the draw. The findings of our due diligence round out the overall viability of the proposed project. Once our due diligence is completed, we have a supportable and fully vetted marketable project to build a loan investment prospectus.
• THIRD-PARTY ENGAGEMENTS: Our due diligence requires us to retain the services of a title company, residential property inspector, residential property appraiser, licensed real estate broker, and licensed bonded and insured general contractor. BCCG orders all the necessary reports to avoid detrimental reliance on reports provided by the borrower, which may not always be updated, accurate, and comprehensive.
• LOAN STRUCTURING: BCCG manages the structuring of the loan with the borrower so that the borrower is entirely compliant with the underwriting criterion agreed upon between BCCG and the investors. This is important because the borrower must sign the promissory note and the mortgage agreement (or deed of trust/warranty deed in certain states) on the day of the loan These documents bind the borrower to perform during the entire loan term, and it is essential that the borrower knowingly agree to the terms and conditions to avoid the borrower walking away from the loan closing table, thus terminating the perspective New Construction loan investment for the investor.
• INVESTOR LOAN PARTICIPATION COMMITMENT AND NEGOTIATION: We seek to build pre-existing relationships with investors before submitting the loan by negotiating the broad range of terms and conditions under which an investor, or group of investors, would agree to participate in any of our New Construction loan investments, we can focus on building a pipeline of feasible New Construction loan investments for further review and consideration that will become the loan investment portfolio of the investors. The pre-negotiated loan investment class participation criteria become the underwriting criteria we introduced to the borrower.
• ESCROW: All investors’ funds are overseen and managed through escrow at the title company closing the loan. If an investor chooses to withdraw from participating in the loan, an escrow direction letter is signed between BCCG and the participating investor and then sent to the attorney (as the escrow agent) requesting a reversal of their loan participation funds held in escrow. Furthermore, once investor funds have cleared escrow for loan funding and closing, those funds are disbursed to facilitate the purchase of the property and the release of construction loan funds in managed disbursements from the title company according to the draw schedule submitted to the closing department by the general contractor/home improvement company. We completely mitigate the risk of nonperformance on the general contractor’s part by managing all disbursements to escrow. Disbursement reports are also made available to the investors upon request.
• LOAN CLOSING: BCCG appoints the closing agent and the closing attorney and assists and cooperates with the closing attorney in drafting loan participation and loan closing documents to ensure that the investor, BCCG, and the borrower have appropriate protections and safeguards in place during the entire closing of the loan and the corresponding loan term in and of
• POST-CLOSING: BCCG is also active in the post-closing matters relating to the loan investment in collaboration with our closing attorney to make sure that the documents that govern the investors’ due on-sale remittance of principal and premium interest are upheld up to and during the resale of the subject property is a seamless transaction with no setbacks or delays whatsoever. The closing agent appointed by BCCG also manages the disbursement of those due on sale proceeds if multiple investors co-invest in the loan.

What Does BCCG Factor into The Process When Structuring a New Construction Loan?

• The Experience of the builder/developer and the project team members.
• BCCG uses several significant criteria for evaluating and structuring New Construction loan investments to submit for Experience of the Builder/Developer –
• The Location of the Project –
• Project Feasibility Analysis – Personal credit of principals will be evaluated for commercial loans made to businesses – owner-occupied commercial properties – businesses less than three years old. A single-entity bankruptcy remote entity is usually formed for non-owner-occupied companies to take ownership. The guarantors must have good credit and are required to provide income documentation. For stated-income commercial loans, guarantors need not provide tax returns or personal financial statements,
• Loan-To-Value (LTV) -. BCCG uses conservative appraisal guidelines where the maximum CLTV is 80%. Therefore, BCCG would require an appraised value of $100,000,000 for a construction and development loan project where the cost to build, including the cost of capital and closing, totals $80,000,000.

Why is LTV, which is based on the NCV, so important?

If a newly built home will be worth $200,000 when rehabbed and offered for resale, and the loan request to buy the lot and make the property is $120,000, then the LTV is the ratio of these two numbers (60%). LTV is important because the margin of safety is related to the LTV. A low LTV means a higher margin of safety for you as the loan investor. An LTV of 80% or lower is a good indicator of investing in any project’s feasibility.

LTC (Loan-To-Cost) Again (using the above property with a $200,000 ARV), if the purchase and rehab cost total $120,000 and the borrower is putting in 25% ($24,000) of their own money, your investment of the remaining $96,000 only amounts to 80% of the combined costs (80% LTC). Your loan investment is even more conservative at an LTV of 80%.

What Is BCCG’s Risk Management and Mitigation Approach?

• INSUFFICIENT CAPITALIZATION RISK MITIGATION: BCCG will work continuously, diligently, and prudently to identify and engage those willing and able prospective loan participants who will execute loan participation agreements on time sufficient to secure the sale of all one hundred (100) Loan Participation Notes. Additionally, BCCG will work to obtain “conditional standby” letters of intent from additional perspective loan participants (for up to 50 Loan Participation Notes) who may be called upon to participate in the event of a committed loan participant withdrawing their previously executed and issued loan participation commitment. In the unlikely event of insufficient Loan Participation Notes being sold, BCCG will authorize the escrow agent to reverse all loan participation fees out of escrow back to the prospective investor who executed a loan participation agreement.
• CONSTRUCTION COMPLETION RISK MITIGATION: BCCG requires both the land development project manager and the vertical construction project manager to maintain a contingency amount of on-site or stockpiled materials and equipment to more than sufficiently and efficiently conduct the scope of work for their respective parts of the project.
• MISAPPROPRIATION OF FUNDS RISK MITIGATION: No one-time, lump-sum disbursements will be made to the land development project manager or the vertical construction project manager during the project. The loan investment proceeds are advanced to the project out of escrow during the “land development,” the “vertical construction” stages of the project will be subject to interim cost accounting reports, on-site inspections, and random construction site auditing that an independent construction site inspector will manage. BCCG will engage the home inspection company according to BCCG’s underwriting guidelines and their fiduciary responsibility to the loan investors. The participating investors. Each project manager must provide the inspector with an up-to-date accounting, reconciliation, and record-keeping of all disbursements received and used accordingly.
• LOAN DEFAULT RISK MITIGATION: Monthly loan repayment default has been mitigated due to a pre-funded balance of interest reserves to be held in escrow and collected by an independent loan servicing company that will promptly remit those monthly interest-only payments to all participating loan investors. These remittances do not rely on the borrowing entity as the party responsible for making the monthly interest payments only to the Additionally, BCCG has implemented a “due on sale” stipulation that requires each house in the subdivision to be cross-collateralized, with a first-lien encumbrance of a fractional repayment of principal and interest that will require the title company to remit such payment to the investors “off the top” via the proceeds of the sale of each home.
• SALES PERFORMANCE” RISK MITIGATION: BCCG has engaged the services of a local advertising agency to implement a marketing and promotional strategy that will both complement and assist the real estate brokerage firm’s efforts to market the homes to be built in the subdivision by implementing a seven-Countywide targeted marketing approach to the 11,500+ households that fall within the various demographics of those consumers that are likely to buy a new home in the price range(s) as those of the homes in the subdivision, to be purchased as either primary residences or as residential investment properties.
• PROPERTY HAZZARD RISK MITIGATION: BCCG has coordinated a comprehensive “blanket insurance coverage” arrangement with Builder’s Insurance Group to provide an end-to-end policy on the homes to be. In contrast, they are being built, and after they are constructed and until they are sold, the loan participants will be named assignees of BCCG as “loss payees.” The properties will be insured for their total appraised market value instead of their wholesale cost to be built. Therefore, in vandalism, theft, burglary, storm damage, fire damage, earthquake, flooding, mudslides, sinkholes, and other acts of God or nature, the loan participants will have an immediate remedy provided by the insurance coverage.
• INVESTOR LIQUIDITY LOSS RISK MITIGATION: BCCG has set “Investor Suitability Requirements” that will require prospective investors to have liquidity of no less than 2.5 times the purchase price of one loan participation unit. This means that BCCGs targeted investor base is that of real estate investment firms and business entities, as opposed to affluent individuals. BCCG expects up to 85% of purchasers of Loan Participation Notes to be organized as such, with up to 15% being affluent individuals inclined to participate in this offering. Furthermore, BCCG’s “Fractional Investment” platform allows a prospective investor to determine the degree of participation in any construction loan investment we offer. This gives you complete control over how much money you invest without sacrificing your liquidity. No “all or nothing” loan participation requirement could make you regret “going all in” out of fear of missing a good return.
• DEPRECIATION OF COLLATERAL RISK MITIGATION: The loan has been underwritten under conservative appraisal guidelines, based on a “weighted ratio between the builder’s cost to buy the finished lot from the developer and to construct the new home thereon, and the margin between that figure, and the highest feasible retail price under which the real estate brokerage firm can sell the house

What Happens If the Homes Are Not Sold During the Loan Term?

Even though this is one of the risks we try to mitigate, nonperformance can still rear its ugly head. If a builder fails to sell the house within the original term of the loan agreement, BCCG will negotiate an extension not to exceed three months. Suppose the house fails to sell within that timeframe. In that case, BCCG (as the trustee representing the loan participants) will initiate “non-judicial” foreclosure proceedings on behalf of the loan participants. The property will be conveyed to the loan participants whose participation units are burdened by that property. In the event of such an occurrence, BCCG, acting as the trustee for the investors, appoints a real estate broker to aggressively list and market the property at a competitive “fair market” auction and “Open House.” This changes the beneficial financial outcome for all loan participants. Whereas note/lien holders were entitled to a payment of principal plus interest, the loan participants are now entitled to a calculated pro rata share of the entire market value of the property to be severally divided amongst them when the foreclosed property is sold.

How Am I Introduced to A New Construction Loan Investment Opportunity?

BCCG distributes a Private Loan Investment Summary to all willing affiliate investors. The summary presents a series of brief bullet points about the development project that needs to be funded. It contains all the pertinent exhibits, such as a copy of the loan application, an executive summary of the project sponsor/builder, the title report on the vacant lot/home site, a copy of the purchase contract for the lot, a copy of the blueprints, the construction permit, the construction estimate, the materials list, the materials purchase order, full disclosure on the construction manager, and a copy of the executed construction services agreement. Lastly, the investment summary indicates how many loan participation units comprise the gross loan amount.

What Returns Are Available to Participating Investors?

The New Construction loan investment platform typically entitles an investor to a 12.5% to 20.5% return (and above), depending on the project. Please refer to our “Underwriting Matrix” for a breakdown of how we maximize your desired rate of return based on various criteria and specific scenarios. BCCG’s rule of thumb is that the more significant the homes are, the more expensive they are, and the longer they take to sell, the higher the return on investment to the investors.

Due Diligence Checklist

BCCG provides a due diligence package (for every proposed construction loan note investment opportunity) for prospective investors to download the following exhibits according to the checklist below:

• Loan Application Form
• Executed Loan Commitment Memorandum
• Construction Loan Agreement
• Purchase and Sale Agreement(s)
• Assignment of Contract (Agreements)
• Title Report
• Site Survey
• Site Plan
• Local Comps w/Pictures of Property
• Title Insurance Policy
• Floorplans and Renderings
• Construction Estimate(s)
• Disbursement Schedule and Project Timeline – Land Development
• Disbursement Schedule and Project Timeline – Vertical Construction
• Real Estate Appraisal
• Comparative Market Analysis (CMA) of New Construction Projects
• Best Efforts Subdivision Sales and Marketing Engagement Agreement
• HUD-1 Closing and Settlement Statement
• Assignment of Mortgage Agreement (Specimen Copy)
• Construction Loan Agreement (Specimen Copy)
• Loan Participation Agreement (Specimen Copy)
• Loan Participation Certificate (Specimen Copy)
• Promissory Note (Specimen Copy)
• Deed of Trust (Specimen Copy)
• Assignment of Mortgage Agreement (Specimen Copy)
• Loan Servicing Agreement (Specimen Copy)
• Third-Party Engagement Agreements and Biographical Summaries
• Comprehensive Insurance Binder (for the entire subdivision, the workers, and the homes to be built)

Does BCCG Provide Verifiable Due Diligence Reports and Exhibits for Our Review?

The “Loan Origination Package” consists of the preliminary loan application, a completed borrower profile, a copy of the purchase contract for the lot, the construction estimate, the draw schedule for disbursements, the materials list, the materials purchase order, the site survey, the floorplans/blueprints of the proposed buildout, the appraisal that defines what the value of the completed project will be worth upon completion, and the marketing/promotion summary that sets forth what the builder will be doing to drive sales.

Why Invest in A Construction Loan Instead of a Construction Project Directly?

BCCG does all the “heavy lifting” regarding involved in putting a New Construction loan investment together for the investor to make fully vetted and informed investment decisions from the comfort of their armchair, as opposed to the perspective loan investor looking for deals on the Internet, attending trade shows, local real estate investor chapters, etc. Of course, nothing stops a prospective investor from doing so, but many investors appreciate that we bring turnkey, “investment-ready” projects. This allows all investors and their respective funds to be “passive” and experience no interruption, disruption, distraction, or disturbance in their day-to-day lives after deciding to invest.

Are Prospective Investors Allowed to Deal with The Builder/Borrower Directly?

We extend professional courtesy to all prospective participants in a conference call with the lead underwriter, the borrower, the project manager, and the escrow agent at the title company. All prospective investors who have executed a Loan Participation Letter of Intent are entitled to one introductory conference call facilitated by BCCG to meet the team involved in the project and the performance of the loan. These individuals may include but are not limited to the borrower, construction manager, escrow agent at the title company, real estate broker, construction site inspector, and, of course, BCCG. After such an introduction, BCCG requires all correspondence, questions, comments, feedback, dialogue, and any other engagement concerning the investment and the team of professionals attached to the project.

What Is the Minimum to Maximum Amount to Invest in A New Construction Loan?

Since our loans are divided into individual loan participation units (“mortgage shares”), the minimum to maximum loan investment range is from $10,000 to $100,000 per loan participation unit. When an investment summary is submitted for review, you can determine how many loan participation units you wish to purchase. The minimum investment per unit does NOT mean only one investor can buy one loan participation unit.

What Are Typical Investment Terms and Maturity Dates?

Most New Construction loans have terms ranging from an initial term of 6 to 24 months, as determined by the build-out timeframe of the homes in the development that secures your particular loan participation unit(s) and the projected resale/selloff period that was quoted to BCCG by the real estate broker/agent contractually to sell each newly built home.

How Is My Investment Secured?

All loan participant funds are secured in FIRST LIEN POSITION on the subject property encumbered by those loan participation units purchased by the loan participant(s). The home cannot be sold without paying the lien encumbrance of your mortgage loan investment.

What Are the Documents That Govern My Investment?

We provide investors with the following documents to facilitate their fractional direct participation in any new loan investment:

• The Loan Investment Summary
• An Executable Loan Participation Letter of Intent
• Note Investment Participation Note Sale and Trust Agreement
• The Note Investment Participation Escrow Deposit Agreement (w/instructions for wiring funds to the TITLE COMPANY directly)
• A Specimen Loan Participation Certificate
• An Assignment of Mortgage Agreement

Loan Investment Documentation Sequence

It usually takes 10 to 15 business days from introducing the investment to negotiating final investor participation terms and conditions.

• Step 1: THE INITIAL INVESTMENT FIRM INTRO & ENGAGEMENT—The Investment Firm introductory packet introduces first-time Investment Firms or Firms that are new to working with BCCG to both BCCG and current loan investment opportunities. The Investment Firm summarizes the investment opportunity into concise bullet points on investment consideration.
• Step 2: THE DUE DILIGENCE REVIEW—BCCG provides download links for a comprehensive set of due diligence documentation that all Investment Firms are advised to review. The documentation includes loan applications, appraisals, title reports, construction estimates, sales contracts, project information, etc.
• Step 3: LETTER OF INTENT—After the due diligence review, BCCG makes a” downloadable letter of intent” form available to prospective Investment Firms so that they can submit a hard copy form that confirms effective Investment Firms’ willingness, capacity, and preference regarding making their investment.
• Step 4: LOAN PARTICIPATION AGREEMENT—Once BCCG receives a completed and executed letter of intent form, the Investment Firm Relations department draws up a loan participation agreement for immediate execution by the Investment. The loan participation agreement also specifies “escrow deposit instructions” for the Investment Firm to deposit their funds safely and securely into the escrow account of the real estate attorney/closing agent of the loan.
• Step 5: LOAN PARTICIPATION CERTIFICATE—Once the Investment Firm executes a loan participation agreement and deposits its funds into escrow, BCCG issues a loan participation certificate formally acknowledging its investment. The loan participation certificate is issued in both actual certificate format and a Loan Participation Acknowledgment letter that provides the Investment Firm with the tracking numbers assigned to them and the loan participation units (LPNs)
• Step 6: ASSIGNMENT OF MORTGAGE AGREEMENT – The county clerk’s office files the loan documents within 3 to 5 business days after the loan closing. Then, BCCG and their real estate attorney draw up the “fractional assignment of mortgage agreement” for every participating Investment Firm according to their pro rata investment share in the real estate loan and the promissory note, collateral, and security instrument.
• Step 7: LOAN SERVICING AGREEMENT (2-Days After the Assignment of Mortgage) – After filing the assignment of mortgage agreement, BCCG properly submits a loan servicing engagement package to all participating Investment Firms. Then, beginning the first Monday of the following month, the loan servicing agent will promptly remit to all Investment Firms their contractual entitlement to share all monies collected from the borrower and the title company as monthly payments or remittances from the sale of the underlying properties.

What Happens After I Review the Documents mentioned above?

Once the information mentioned above has been reviewed to the satisfaction of the prospective investor, they sign and return to BCCG’s office an executed Loan Participation Letter of Intent where they preliminarily agree to purchase either one or several loan participation units as per their willingness and capacity to do so. BCCG will then tally up the loan participation units intended to be purchased and forward an executable Loan Participation Agreement to each prospective investor with instructions on electronically transferring funds to the escrow agent at the title company closing the loan. Once the requisite amount of loan participation units have been committed to and purchased, the escrow agent at the title company will promptly issue a “loan closing memorandum” to BCCG. This document confirms that the scheduled loan closing date can commence as planned.

When Am I Required to Make a Loan Participation Escrow Deposit?

BCCG requires that investors deposit their funds into the title company/closing agent’s loan participation escrow account within three business days after executing a loan participation agreement. This allows BCCG to satisfy the scheduled loan closing date requirements.

If BCCG is the loan’s originator, how do I acquire a stake in it?

The fractional assignment of mortgage agreement is a document that transfers to a loan participant a secured, legally binding, undivided, and irrevocable interest in both the mortgage agreement and the security instrument of the underlying subject property (i.e., the homes to be built) made between BCCG and the borrower/builder. The agreement functions as a bill of sale that legally proves that you bought a piece of the mortgage loan with equal collateral according to the amount of money you paid plus interest.

When Does The “Fractional Assignment of Mortgage  Agreement” Go into Effect?

The Assignment of Mortgage Agreement is effective within 2-3 business days after the loan’s closing. The process involves the closing agent and their staff filing the appropriate documents in the county where a secured property is located. After the filings have gone into effect, you will be a real estate-secured beneficial lien holder in common with the other loan participants as a matter of legal record.

What is Loan Syndication?

Loan Syndication divides a loan into “shares” to be sufficiently distributed among loan participants. Loan Participation is the process by which a syndicated loan is fully funded by participating investors with tracking numbers and serial numbers assigned to both the Loan Participation Note Holder and the Loan Participation Note(s), respectively. For BCCG to expeditiously raise capital for projects ranging from $5,000,000 to $100,000,000, we divide private loans into fractional units ranging from $10,000 to $500,000, respectively. For example, our most minor loan request of $250,000 will be divided into 25 loan participation units of $10,000 each, and our most significant loan request of $100,000,000 will be divided into 200 Loan Participation Notes of $500,000 each.

Can You Explain the Investor Process When Selecting Loan Participants?

The sole purpose of our investor relations campaigns is to identify prospective investors willing to consent to consider them as “on-call” loan participants. To that end, BCCG makes general inquiries to the private investor marketplace to identify prospective investors. Once those investors complete an “Investment Preference Questionnaire,” it will tell us their capacity, conditions, preferences, and period under which they would consider investing in a BCCG-originated construction loan investment. Then, suppose a particular project can satisfy its capacity, criteria, and conditions. In that case, BCCG will distribute an “Investment Summary” of all available construction loan investments best suited for it to consider. Each prospective investor that executes a “Conditional Loan Participation Letter of Intent (the last page of an Investment Summary, by the way)” will be considered a LOAN PARTICIPANT of record and will, therefore, be expected to meet the loan participation deadline.

Why Does BCCG Rely on Multiple Investors to Participate in One Loan Investment?

BCCG relies on multiple investors to participate in any construction loan to spread risk and reward among various investors. Even if one investor has the liquidity to invest $375,000 in one deal, we would never require them to invest that much at once. We would instead present several different loan investments to that individual for consideration, allowing them to spread their money around and bring other investments into those loans.

What Happens If BCCG Is Unable to Sell All the Loan Participation Notes?

BCCG always pursues building additional relationships with additional investors to mitigate the risk of non-performance. The main reason the loan participation units are sold at such a marginal price is so that we can accommodate a broader investor base. This will keep us from exhausting the capital resources of a few faithful “deeper-pocketed” investors who regularly invest. When BCCG receives the requisite number of loan participation commitments from enough prospective investors, it gives BCCG sufficient time and access to fund and close any loan. Additionally, BCCG will endeavor to get a “standby” commitment from additional perspective investors who could be in the position to step in and complete a loan participation engagement if a loan participant had to withdraw from participating in that loan investment.

How Does a Loan Participation Note Work?

A loan participation unit represents a “share” in any commercial mortgage loan investment. As such, an individual investor can measure their willingness and capacity to participate in any loan investment within parameters that satisfy their financial objectives. A Loan Participation Note (LPN) is the lowest common denominator of the total gross loan amount made to the borrower. A loan participation deadline stipulates the latest date/day/time when all investor funds must clear the escrow account at the title company. This period is usually no later than TWO business days before the scheduled loan closing.

How Are Loan Participants Tracked and Designated?

BCCG has implemented an internal tracking system for the management of both loan participants and their respective loan participation units purchased. Loan participants are assigned a serial number called a “Loan Participation Note Holder Identification Number (LPNHID).” This number is assigned a nonparticipant order in which their funds have cleared escrow at the title.

Say, for example, that to fund construction loan number EXAMPLE-LOAN001, the THIRD loan participant whose funds have cleared escrow for the funding and closing of “EXAMPLE-LOAN-001” would be assigned the designation of LPNHID-003.

The loan participant’s LPNHID number will be: “EXAMPLE-LOAN-001-LPNHID-003-LPN-029”.

However, each loan participation unit has its serial number as well. Referring to the above example, you will notice that additional numbers are underlined and italicized. These numbers represent the loan participation unit purchased by the loan participant. This would appear as a line entry in the “Registry of Loan Participants.”

What Parties Are Notified When Loan Participation Funds Have Cleared Escrow?

Once all loan participation funds have cleared escrow, the escrow agent at the title company is instructed to issue a Loan Closing Memorandum to all relevant parties (including but not limited to a CMF, all loan participants, the borrower, the real estate agent, the seller, representative legal counsel, and the construction manager). This document confirms that the title company has obtained a “clear to close” and can honor the scheduled loan closing date. It may even provide an earlier closing date than the initially scheduled date.

How Are Investor Funds Managed Throughout the Entire Project/Transaction?

BCCG prides itself on wisely structuring each new construction loan investment to minimize the risk of capital loss for all participating investors. The handling of investor funds is outlined below:

• NOTE: The loan participation funds are directly deposited INTO ESCROW with a licensed, insured independent (i.e., not affiliated with BCCG or the builder in any way whatsoever) title company that will serve both BCCG and the loan participants as a closing agent of the loan.
• NOTE: Participating Investors do NOT send BCCG any funds whatsoever.
• NOTE: BCCG neither manages nor serves as a fiscal agent for investor funds. After depositing their funds into escrow, investors can even (for cause) have the escrow agent reverse their funds if they wish to opt out of participating in the loan investment. To do so, an investor must request that BCCG send them a “loan participation unit purchase withdrawal form.”
• NOTE: When subscriptions for any Participating Mortgage are received, the investment check is IMMEDIATELY HELD IN ESCROW until the scheduled loan closing date.
• NOTE: A local or national escrow company and real estate attorney facilitate EVERY loan transaction.
• NOTE: BCCG does NOT have access to investor funds held in escrow.
• Every Participating Loan will be serviced by an experienced third-party independent commercial real estate loan servicing company on behalf of BCCG and its investors.
• NOTE: The designated Loan servicing agent will provide complete investor reporting, remittance, and foreclosure management services on behalf of BCCG and its investors
• NOTE: Your loan participation funds are a “pass-through” direct participation private investment in a New Construction and development loan. As such, you are making the loan to the borrower directly and not investing in BCCG or the Borrower in any way, shape, or form whatsoever.
• NOTE: BCCG does NOT require affiliated investors to give us their Social Security numbers, taxpayer ID numbers, bank account and routing numbers, financial statements, tax returns, or any personal, sensitive financial information during the investor registration process, nor any loan investment engagement.

Can BCCG Make Group Presentations to My Friends, Family Members, And Colleagues?

Yes. Suppose your immediate social circle consists of enough prospective investors with sufficient capital resources to fund any construction loan amount fully. In that case, we will be more than happy to present them to you first. In such a case, however, we advise prospective loan participants that there is always a time-sensitive aspect to what we do.

Is There a Specific Deadline to Invest in Any Given Loan?

Yes. Every Loan Every loan that BCCG originates comes with a mandatory loan participation deadline. This is the day/date/time when all loan participation fund deposits must clear escrow at the title company for BCCG to perform on or before the scheduled loan closing date. So, if BCCG were to rely on any one group desiring such exclusivity, we would have to rely on that group’s ability to participate from start to finish, on schedule. That is why BCCG has a formal investor registration process. It allows BCCG to ensure that we present to a captive audience the means to participate in any prospective loan investment we introduce.

Are There Any Current Loan Requests Available for Investment Consideration?

Yes. Information on present and upcoming opportunities is available upon request. When projects are available for funding consideration, BCCG distributes an investment summary for your review. For any inquiries, please contact J. Edward Lawson at 770-657-8254 or via email at JLawson@BuildersCCG.com to discuss any available loan investment scenarios. You can also set a meeting with him here.

How Do I “Officially” Become An “On-Call” Prospective Investor?

All prospective loan participants must review and complete the “Prospective Investor Registration Form (here)” at the end of this document. The forms consist of a two-page questionnaire with a checklist that tells BCCG about their geographic preferences, terms and conditions regarding interest rates, loan-to-value ratios, term lengths, project types, quarterly loan participation budget, and contact information. You will be pleased to know that BCCG does NOT require a prospective investor to provide any personal/corporate bank account information, tax returns, financial statements, taxpayer ID numbers, social security numbers, employer identification numbers, or naturalization numbers required by BCCG whatsoever. NOTE: That information will be requested by the independent loan servicing company when the loan is closed.