Estate Syndication Plans - Continued...
creates both types of the most common real estate syndication plans:
Placement Offerings. The change in the SEC rules means that general
solicitations for private placement offerings of securities are now allowed,
provided; all of the subscribers to the private placement offering are in
fact sophisticated investors who are either institutional investors or
accredited investors. Due to the change in the rules, this should be
the primary means of raising capital for a venture.
Sales Plans. No, this isn't a condo plan created for the
purposes of selling housing units for the purposes of providing
dwellers with housing; this plan is created as a means of raising
additional at-risk capital contributions. Condo plans are
subject to certain limitations and therefore should be created on
the basis of limiting the scale to an amount equal to the project's
capital expense for the final month of the construction phase (this
can still be materially-significant to the capital funding plan).
Tenants-In-Common Sales Plans. Tenants-In-Common syndication
sales proceeds can be applied as early as the project's
pre-construction phase - and that makes TIC plans very important to
the developer that is seeking to maximize his/her financial
investment leverage. Unlike condominium sales programs, TIC
plans provide developer's with the opportunity to reduce their
capital investment in a given project to seed capital only that is
subject to the developer withdrawing said seed capital based upon
the success of the overall sales program of both plans being put to
work in unison.
totality of this structured fundings approach is to:
the developer's investment to the cost of due diligence
documentation (architecture, engineering, environmental, zoning,
construction costing, feasibility studies and related costs)
together with the cost of obtaining site control. This will
work out to a cost of $300,000 to $500,000 per project.
the developer's overall business opportunity by allowing the
developer to re-leverage the developer's seed capital on a more
frequent basis than would otherwise be possible if the developer
accepted full recourse and asset cross-collateralization
critical considerations that must be "baked into" each
syndication plan approach include:
leverage. The condominium plan is limited to the construction
phase capital expenditures for the last month of the construction
phase. The corresponding percentage of the total space plan
must be less than the pro-rata contributions the net sales proceeds
provide (e.g.: if the condominium sales plan is intended, upon
sell-out, to provide 12% of the total project development budget,
the corresponding portion of the project space plan required to
fulfill the sales goal must be less than 12% of the total space
plan). In some cases, this will require a significant amount
of creativity and expertise to achieve (you'll want Rainmaker to
create your plan to maximize this opportunity).
Investor Cutoffs. The condominium plan and the TIC plan
approach lend themselves to reducing investor participation to a
specific time period and a finite return that is commensurate with
the risk accepted by the investors. In particular, the TIC
plan construction pool risk investors can be limited (and are
routinely limited) to participating in the construction phase with a
second level of TIC syndication plan sales proceeds being used to
retire the construction pool risk investors without necessarily
decreasing the developer's long-term incremental equity enhancement
and investment income sharing.
Rainmaker Underwriting and get the facts. One of our consultants
would be happy to explain them to you in a free initial consultation.
Goes Into An Underwriting?
The Rainmaker approach is truly
a comprehensive assessment with 66 exhibits collected on every project
that cover every aspect of the development, construction, operations and
regulatory matters. Collateral, credit and capacity underwriting reviews
are conducted using CREFC underwriting standards in addition to a
complete default risk analysis on term, maturity and technical default
risk profiles. Our typical underwriting report on a new
construction project will easily exceed 500 pages and catalogue all
transaction documents, plans and specifications.