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Most commercial bank retail project loans are for developers that
have anchored retail project construction financing
needs. An
anchored retail project is a project that has an executed lease or lease
memorandum with a credit-rated anchor tenant. The anchor becomes
the long-term credit behind the deal, so the anchored retail project
construction financing is less complicated for a commercial lender.
If you don't have a credit-anchor then you should be casting a broader
net in the capital markets (including real
estate syndications).
The institutional market is a different story in that,
significantly larger financial investment leverage is usually created
because the institutional investor market usually offers a much higher
loan-to-cost ratio versus what you can find from a commercial
bank. This is only part of the story though and you should at
least have an understanding of some of the more onerous requirements of
a commercial bank lending approach compared to an institutional
placement. Consider the following issues:
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Cross-Collateralization.
A commercial bank demands a much larger collateral pool be offered
prior to the commercial bank approving your loan. The
collateral requirement ranges from 150% of the loan origination
amount to as much as 350% of the loan origination amount.
Effectively, the bank is going after all of your assets. You
can't spend an asset, but you can leverage it for your
benefit. The commercial bank approach guarantees you will not
be able to leverage those assets.
-
Cross-Default.
A common provision. If you default on any other loan
agreement, the bank automatically declares default on your loan.
-
Leverage.
Typically, the loan-to-cost ratio of a commercial bank loan is 10 to
15 points lower than what can be had via the institutional market
approach.
-
Growth.
Because the commercial bank has all of your collateral, your
organization's ability to take on additional opportunities is
limited to what the commercial bank decides you can do. You
are now working for them, they just let you have your own business
card.
Rainmaker
can help you by providing structured finance solutions and a team that
is dedicated to the premise the institutional market is where most
client projects belong. We help you put together the necessary
elements, strategic partners and providers required to help you make the
transaction qualify for an institutional private placement
offering. Rainmaker moves beyond the plan to provide you with
investment incentive entitlement reviews, access to investment bankers
and tax credit allocatees that may be able to help you realize your
ambitions.
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