Definition
Takedown is the term used in real estate financing to describe the moment a borrower takes possession of funds from a lender under a pre-agreed line of credit or loan commitment. Takedowns are often scheduled to coincide with specific project milestones to ensure that funds are available when needed for various stages of development.
Examples
- Buying Land: The developer might schedule the first takedown to fund the acquisition of the necessary plot for construction.
- Installing Utilities: Another takedown might cover the expenses involved in laying down essential utilities such as water, electricity, and sewage systems.
- Paving Streets: Funds can be drawn in a third takedown to pave streets within a development area.
- Pouring a Foundation: Taking down funds could be crucial at the stage of laying the foundation for the structure.
- Framing the Building: The framing stage includes putting up structural supports and framework, often requiring a separate takedown.
- Roof Installation: A final takedown might cover the costs associated with putting up the roof and finalizing the structural exterior of the building.
Frequently Asked Questions
What is the main purpose of scheduling takedowns in construction financing? Takedowns are scheduled to align the disbursement of funds with the specific needs of a project at different stages, ensuring that money is available exactly when required, avoiding unnecessary interest costs and liquidity issues.
Are takedown amounts flexible? Typically, the takedown amounts are pre-determined and align closely with project budgets and timelines. However, some flexibility can be negotiated depending on the lender’s terms and conditions.
Do takedowns apply only in real estate? While commonly used in real estate and construction financing, takedowns can be found in other industries that depend on staged financing for project milestones.
What interest rate applies to takedowns? Interest rates on takedowns can vary and are often determined by the loan agreement in place, sometimes involving variable rates tied to index rates such as the prime rate.
Can takedowns be postponed or accelerated? Postponement or acceleration of takedowns can sometimes be negotiated; however, it usually depends on mutual agreement between the borrower and the lender.
Related Terms with Definitions
- Line of Credit: A pre-approved borrowing limit that can be borrowed against, either in full or partially, as needed by the borrower.
- Loan Commitment: A lender’s promise to provide a loan to a borrower, often contingent on specific terms and conditions.
- Draw Period: The period during which the borrower can draw down on the line of credit or loan commitment.
- Construction Loan: A short-term loan used to finance the building of a project, often converted into a permanent loan once construction is completed.
- Interest-Only Payments: Payments made that cover only the interest accrued on the loan during the draw period, with the principal repaid once the draw period ends.
Online Resources
- Investopedia on Construction Loans
- Federal Deposit Insurance Corporation (FDIC) on Real Estate Loans
- National Association of Home Builders (NAHB)
References
- Geltner, David M., et al. Commercial Real Estate Analysis and Investments. OnCourse Learning, 2013.
- Brueggeman, William B. and Jeffrey Fisher. Real Estate Finance and Investments. McGraw-Hill, 2010.
- Miles, Mike E, et al. Real Estate Development: Principles and Process. Urban Land Institute, 2015.
Suggested Books for Further Studies
- Clause, Bronte. Real Estate Development and Investment: A Comprehensive Approach. Urban Books, 2020.
- Sirota, David. Essentials of Real Estate Finance. DF Institute Inc., 2019.
- Peiser, Richard B. Professional Real Estate Development: The ULI Guide to the Business. Urban Land Institute, 2019.
