How to Finance Construction Loans in Hawaii
To finance Hawaiian construction projects for commercial real estate properties located either in Hilo or Honolulu, a business bank or private equity lender will structure a construction-to-permanent loan, which is basically a temporary finance structure for the completion of the Hawaiian construction project, which then is converted to a stabilized permanent term loan.
Speculative Lending in Hawaii
However, most financial institutions will not provide speculative financing for ground-up development projects in Hawaii. Some business banks in Hawaii will only consider owner-occupied Commercial Real Estate projects, where the Hawaiian investor is “full recourse” (financially responsible on a personal basis). A Non-owner Commercial real estate project in Hawaii, where the future development is pre-leased (75% +) prior to the construction completion, will be considered more favorable for commercial real estate financing, such as for a build-to-suit project, whether in Kona or Waikiki.
Although there may be local community banks in Oahu or credit unions on the Big Island that specialize in spec construction, most Hawaiian commercial real estate lenders will not consider speculative construction projects in Hawaii, which are deemed a high-risk proposition. Commercial real estate construction loans in Hawaii are riskier than permanent term loans because the development project is not yet built and may end up incomplete with funds running dry prior to completion of the commercial real estate development project in Hawaii.
Speculative financing for Hawaiian commercial real estate construction projects is risky not only because the commercial property in Hilo or Honolulu, is not yet stabilized, but also because the Hawaiian commercial real estate investor is requesting that the business bank or private equity lender located in Hawaii fund on future value, which may change due to various economic factors.