Acquisition loan for land

NAHB’s newly published Survey on Acquisition, Development & Construction Financing shows that while there may have been some modest easing in lending conditions for new single-family construction loans during the second quarter, that slight improvement was more than offset by tightening on new loans for land acquisition and multifamily condo construction. In general, for any type of AD&C loan, more than half of builders and developers in the NAHB survey reported that availability of credit was about the same in the second quarter as it was in the first.

About 23% said credit had become less available for land acquisition loans, versus 15% for both land development and single-family construction loans. Meanwhile, the tendency to report declining availability of credit was stronger among builders with fewer than 25 starts — indicating that the effects of tighter credit conditions are hitting smaller builders harder than others. It follows that smaller builders in the survey were more likely to report putting projects on hold until the financing climate improves. Looking at the broader picture, shares of NAHB builder/developers putting various projects on hold increased in the second quarter following two consecutive quarters of improvement.

Also during the second quarter, 29% of single-family builders reported using construction-to-permanent, or C-P, loans—that is, construction loans that automatically convert to long-term mortgage on completion for borrowers who want to close on both at the same time. Over half of these said their customers were having problems obtaining C-P financing, with the most common problem cited as low appraisals.

The leading reason given to builders by lenders for continued tight credit conditions for both new loans and existing loans is regulatory pressure on lenders, followed by regulatory/accounting rules and lender board of directors demand.

One upbeat finding of the survey was that the practice of lenders tightening terms on outstanding AD&C loans appeared to be receding. In the second quarter, shares of respondents reporting this problem were 25% (for acquisition loans), 30% (development loans), 20% (single-family construction loans) and 13% (multifamily construction loans). All of these percentages were the lowest on record since the question on outstanding loans was added to the survey in mid-2008.

In part, the overall survey data contrast with newly reported data from the FDIC, which provide a slightly brighter picture of AD&C credit conditions compared to the first quarter. That analysis showed that the stock of outstanding AD&C loans for residential construction purposes rose for the first time since 2008, suggesting that new originations of loans are outpacing the volume of retirement of old debt.

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The quarterly cash flows from operating activities were negative primarily as a result of the need for working capital to cover large-scale development projects.


What is land acquisition?

Land acquisition is when a company buys undeveloped land for the purpose of (now or later) developing it. Thanks 4 asking