Developing commercial real estate in New York is anything but simple. And if you’re having trouble streamlining your construction finance processes, then you’re not alone.
Because the state requires you to have at least two types of loans for each project, many New York developers grapple with the pain of managing multiple funding sources. And because each loan has its own specifications for how you can spend funds, tracking construction finance often becomes a migraine-inducing mess of convoluted spreadsheets and tedious line-item comparisons. After all, the only way to track how, when, why, and where you’re applying funds from each source is a very manual process.
At some point (likely amidst a bout of administrative frustration), you’ve probably questioned why New York funding requirements are so complicated and whether there is any way you can make your life a little easier.
Here’s what you need to know about the New York Lien Law and how to meet its demands without the headaches.
What does the New York Lien Law say about funding sources?
The New York Lien Law has several technicalities and articles that apply to various situations. Many of these items may or may not impact your work as a real estate or property developer, so it’s important you review it with your legal counsel. You can read the full text here.
However, when it comes to construction finance, the NY Lien Law says building loans can only be used for improvements categorized as hard costs — along with a few exceptions for specific soft costs like payroll taxes, real estate taxes, sales taxes, unemployment taxes, and more.
You must fund other soft costs, called non-permissible soft costs, through equity or another loan, such as a project loan.
Challenges Created by the New York Lien Law
Because the Lien Law is not entirely explicit in its definition of permissible and non-permissible soft costs, it can be challenging to interpret. And failing to comply with this law could result in severe penalties.
Many developers are advised to track all items paid through their real estate capital stack and carefully identify whether billings are made to the appropriate source, to remain compliant.
As a result, developers are forced to compile and manually update a complex set of spreadsheets. As you can imagine, and may have already experienced, this is a tedious and time-consuming process.
How to Overcome These Challenges
Luckily, there is an easier method.
A high-quality construction finance platform can help you seamlessly track funding sources at a line item level. The most powerful solutions also allow you to add all funding sources into whatever grouping you prefer, and then automatically calculate what you owe from each source.
When choosing a platform, it’s a good idea to seek solutions that offer proactive error detection to help you remain compliant and fast confirmation of project requirements so you can make the best possible funding decisions.
In other words, by implementing a reliable construction finance platform, New York developers can say goodbye to messy spreadsheets, late nights pouring over finances line-by-line, and unnecessary headaches forever.
Rabbet helps you quickly and accurately track the uses of your funding sources. Learn more and schedule a meeting »