With AD&C lending at a standstill, Ledford and others envision—and are pursuing—new sources of equity and credit for housing construction. “We’ll need other sources to fill the gaps,” left by traditional lenders unable to carry the same load, Ledford says.
Joint ventures similar to the “shares” that Knecht tried to sell, fee-build projects for banks with improved lots on their books (an opportunity that Hoover is tapping), gaining construction-to-permanent loans so the balance isn’t due upon the CO or closing, and simply building smaller, less-expensive homes that can be financed without a bank are among the short-term plays.
Longer term, Ledford can see a secondary market for construction lending, set up similarly to the mortgage loan model, that would pool small investors to make AD&C loans at less risk. “The terms would obviously be shorter [six to 12 months compared to 30-year mortgage loans], and a servicer would have to be in place to manage draws and verify construction progress,” he says. “It would allow more lenders, including mortgage lenders, into this market and increase competition.”
But that’s too far down the road for Knecht and The New American Home 2010, where kitchen cabinets and appliances are shrouded in protective foam sheeting and cardboard, showers are tiled around plumbing stub-throughs, and the infinity-edge pool in the backyard is a pit of rebar and white plastic pipes.
“The house is 75 percent done, not counting all the stuff sitting in boxes that we’re waiting to install,” he says, adding that subcontractors call about the status of their outstanding invoices as well as when or whether Knecht needs them back to finish the house. “Everyone’s itching to do something, to work long days to get it done [by IBS]. But there’s nothing else we can do.”