Brian is an experienced contractor who has been in the construction business for 18 years. He has independently managed several commercial building projects in the past.
Brian now wants to take on a large residential development - building 35 luxury townhomes in an upscale neighborhood. The total project cost is estimated at $22 million.
Brian has approached First National Bank for a construction loan. However, his current financial situation presents some challenges:
1. Collateral: Brian's personal assets total only $4 million in value, insufficient for the desired $22 million loan.
2. Legal Issue: Brian is involved in an ongoing lawsuit related to a prior construction defect, with potential damages of $150,000.
3. Real Estate Risk: The bank is wary of the significant exposure to residential real estate market conditions that this large townhome project would entail.
If Brian manages to record a 15% net profit on the $22 million contract value for the 35 luxury townhome development, what would be the typical 5% builder's retention amount held back until project completion?
Question 10Answer
a.
$3,300,000
b.
$1,650,000
c.
$825,000
d.
$1,100,000