In a number of situations that I have been involved in (Canada), the builder cannot get funding from traditional sources because there's no tangible asset to fund, and the builder still hasn't obtained permits from the municipality, etc (the necessary boilerplate to get going on construction). In these cases some builders will seek out a lawyer that will pool together funds from various investors and the loan rate is typically 15%-25% which makes for a nice profit, but with the knowledge that it could blow up. Once the permits are in place, then traditional funding comes a lot more readily.
>But then I don't understand why so much capital would be required just for getting permits.
There are lots of permits that only become available much later in the process. For example, an occupancy permit is only granted once the building is in a habitable state.
There are always permit delays of some kind or another because no matter how much research and planning you do, there are things that are simply unknown or that have to be changed (and thus re-permitted) at the proverbial last minute.
