The Funds You Need, When You Need Them

Do you need a temporary loan for a real estate development project? Have the banks denied you because you don't meet their cash flow requirements, even though you are rich in equity?

A bridge or gap loan is defined as a short-term real estate loan that gives the property owner time to complete some task, such as modernizing a building built in the '60s or '70s and bringing it up to 21st century levels, converting its potential (known as latent value) into profit. A typical bridge loan will have a term of 6 to 24 months, along with a cash reserve for interest payments so you can concentrate on development instead of finding the funds to make monthly payments.

Gap Investors looks at all types of projects and properties, big and small, but invest only if there is significant upward potential in the property.

Bridge loans are more expensive than permanent loans, but they are typically paid off when the owner places permanent financing on the property, after the improvements are completed. For example, say you have inherited a large parcel of land in Costa Rica and you want to take advantage of the tourism and construction boom by building homes for sale. Experts would say that the parcel of land would have a high latent value.

Your bank wants to provide you with a long term commercial mortgage once the construction is complete, but is not interested financing you now because of the income requirements for servicing a bank loan. So a construction loan is required from a separate lender to finance the construction period. In essence, the construction loan is bridge financing, providing you a bridge to the long term commercial mortgage you desire.

Normally, banks will provide loans only if the borrower has excellent credit and a large financial statement. If the borrower cannot meet the income requirements to service a bank loan for a large-scale development, he may have to find an investment partner (with all associated downsides) or go to a hard money bridge lender. Hard money bridge lenders are lenders who loan primarily on the equity in the property. At Gap we specialize in forming a syndicate of these bridge lenders who believe in your project and are willing to speculate on it for a higher return than they would get in other investment avenues.

At Gap it's a win-win situation for both parties.

The Development Process

To make your project feasible for investment from our lenders, it's best to prepare your property and secure the following permits (which may be time-consuming) wherever applicable:

1. Updated survey of the property registered with the Registro Nacional
2. Full appraisal of the property and development project by a well-known (preferably internationally) service
3. Master plan (including landscape architecture)
4. Preliminary design and drawings
5. CFIA (Engineers and Architects Federated Colleague) permits. Contract services with architectural company.
6. INVU (Dwellings Board Chairman)
7. SETENA (Enviromental Impact Office)
8. AYA (Water Board Chairman)
9. ICE (Electrical Board Chairman)
10. Municipality building permits
11. CFIA, to approve specific construction projects.
12. Development and construction of a sewage plant if necessary.
13. Permits to cut trees (MINAE and SETENA)

At Gap Investors we can use our knowledge and experience of Costa Rica's legal environment to provide you with some assistance in obtaining the necessary permits and development plans so that our lenders will be interested in investing.

Permit verification is also required from other institutions such as the Public Registry; the Ministry of Public Works (Ministerio de Obras Públicas y Transporte / MOPT) for further road construction projects; the Ministry of Health (Ministerio de Salud); the National Institute of Housing and Urban Development (Instituto Nacional de Vivienda y Urbanismo / INVU); and the Municipality where the property is located (Municipalidad). The approved permit will be issued from the corresponding Municipality once the permit taxes (set by the Municipality) have been paid.

In summary, project development sequence and professional services can be divided into the following phases:

Phase 1: Architectural Concepts / Design Development / General Site Planning

Phase 2: Construction Plans and Permits

Phase 3: Construction and Inspection