Non-Recourse Hotel Construction Loans - Continued...

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The outcome of the Rainmaker review was to utilize the same 5-point plan approach to hotel and motel development financing as we are commending to other developers of commercial real estate projects.  The plan focuses on the following elements:

1. Developer Seed Capital.  The developer must take a new stance as the chief promoter of investment opportunities that focus on higher-yielding investment income opportunities for the investing-public.  The developer's seed capital is used to complete the due diligence documentation and marketing the various plan components that follow (below).

2. Condominium Investment Plan.  This isn't your plan to sell housing for the benefit of dwellers; this is a plan designed to garner more capital contributions in a manner that increases the financial investment leverage of the developer and TIC plan investors (below).  That means we have to understand how to allocate space and earnings to the condominium plan so we end up with having enough net capital contributions to pay the total capital expense for the last month of the construction phase (because these deposits cannot be used sooner).

3. Fractional Tenants-In-Common Syndication Plan.  Fractional Tenants-In-Common ("TIC") Syndication Plans are typically created for the remaining portion of the project space plan that is not encumbered by the condominium investment income plan.  TIC plans are important because they are the one source of financing that can be brought to the project as early as the pre-construction phase - you cannot ignore the impact TIC plans may have including raising sufficient at-risk capital so as to allow the developer to withdraw the developer's seed capital as early as the project's construction phase!

4. Entitlements Financing.  Here is where we focus on statutory investment incentives the project may be entitled to claim.  The difference in our plan is to focus on those entitlements that are already authorized and only require the project to be placed-in-service.  Again, the extended application and approval process for some of the entitlements automatically disqualifies them because we have no way of effectively planning the capital funding cycle.

5. Construction Mortgage Financing Loan.  Now we have the prerequisites in place to negotiate the construction loan package including the recourse and cross-collateralization issues.  Flagged hotel developments typically find construction mortgage financing having loan-to-cost ratios in the range of 65% to 75% of total budget.  With the additional equity contributions and purchase of credit enhancement, the loan-to-value ratio can drop as low as 55% - a level where any commercial lender (that is big enough!) can make the construction loan and waive recourse and cross-collateralization.

Rainmaker provides due diligence documentation management programs to all types of hotel and motel development programs that includes:

Rainmaker has provided services on literally hundreds of transactions from coast-to-coast throughout North America.