Publication Date


Document Type


First Advisor

Wilbur, William L.

Degree Name

M.S. (Master of Science)

Legacy Department

Department of Finance


Bank loans--United States; Construction industry--United States--Finance


In recent years there has been a building boom of great significance in the United States. In Chicago alone during 1972 there were 23 major high-rise buildings under construction. The number of apartment units and condominium units combined with single family homes under construction in some areas of our country was sufficient to more than double the residential units in the towns where they were being built. Many new shopping centers, from small neighborhood convenience centers to giants such as the Woodfield Mall in Schaumburg, Illinois, totaling over 1.5 million square feet, are being built all over the country. As more and more people work fewer and fewer hours, recreational parks with manmade ski slopes, lakes, forests and amenities of all kinds are being developed in many parts of the country. All these projects, with a few exceptions such as the Sears Tower in Chicago, must be completed by using money from a financial institution. So far, commercial banks have supplied the major portion of the funds used for new construction other than one to four family residences which are financed mostly by savings and loan associations or mutual savings banks. Recently, however, real estate investment trusts (REITs) have become significant sources for interim construction funds. With the large amount of construction going on it is startling to realize that not many banks making the interim construction loans have people qualified to properly approve and administer the loans. Further, very little information is available to guide the banker in approving and administering an interim construction loan. Bankers find themselves in an even more serious situation now because a number of the few bank officers knowledgeable in interim construction lending have been enticed into the new and aggressive REIT industry by larger salaries, bonuses and excellent fringe benefits. A fairly short, comprehensive study of the methods of properly administering an interim construction loan is needed in the banking industry. The study must be fairly short because bank officers are busy, but the study cannot be too short or it will not touch enough of the important areas of the subject. The term "interim construction lending" arises because the loan is outstanding only during the construction period, i.e., during the period between the time the project is planned and begun to' the time it is finished and turned over to the lender who supplies the long-term mortgage used to finance the year-to-year operations of the project. This writer has been involved in interim construction lending for almost ten years in a savings and loan association, a bank and two short-term construction REITs and has seen the confusion that abounds in the industry resulting from inadequate understanding of the subject by the people involved. The research method used for this study is that of reviewing much of the limited amount of information available on the subject of interim construction lending and putting the most important items in chronological order with an explanation of why each item is important. All of the information was reviewed in light of this writer's experience. Much experience was gained by many conversations with colleagues over the years and it was therefore believed that no formal questionnaire was necessary to obtain information on the subject from people in the industry. Further, the nature of this study does not lend itself to statistical analysis, thus rendering a questionnaire form of research even less useful.


Includes bibliographical references.


3, v, 97 pages




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