Non-Recourse Apartment Construction Loans, Lending, Investments & Financings...

Multifamily housing developers seeking non-recourse apartment construction loans outside the FHA/HUD-insured envelope (Section 221 projects) can take advantage of conduit financing providers for the permanent take-out loan, but this leaves the question of the construction loan's terms up in the air.  In the past this has meant that developers sign for full recourse and hope to complete the construction as quickly as possible.

Rainmaker Marketing Corporation offers an alternative financing structure designed to provide the developer with the opportunity to negotiate successfully for a non-recourse loan that also waives the dreaded cross-collateralization requirement that has hamstrung many a developer in the past.

The issue is equity financing and developers attempt to find the equity and create an opportunity (both near-term and long-term) for the developer to profit.  The profit picture includes the following income sources generated by each multifamily (apartment) new construction project:

1. Development Fee.  Some lenders will not allow it - meaning they won't fund it, but that doesn't mean the development fee is out of bounds; far from it.  You are going to pocket the fee and there is more to come.

2. Near-Term Incremental Equity Gain.  The results of developing and operating the new construction apartment project (or most other multifamily projects, for that matter) to the point of the property's maximum stabilized operating capacity creates an equity gain.  The developer is, more or less, forced to distribute the majority of this gain to the construction risk pool investors who funded up practically all of the equity required to finance the transaction.

3. Long-Term Incremental Equity Gain.  This results from holding the stabilized property for a longer-term (5 to 7 years or more) and cashing in when market conditions suggest the time to sell has been reached.

4. Long-Term Investment Income Opportunity.  The generation and distribution of the net profits from ongoing operating activities provides a steady stream of income that is divided between the developer and the long-term investor syndicate.

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