Pre-Construction Phase Project Financing - Commercial Real Estate Development Projects & Programs

Obtaining pre-construction phase project financing in the institutional market is no cake-walk and we recommend consideration be given to selling real property interests (via a qualified real estate syndication plan).  In most cases, qualified institutional buyers (the "life-blood" of institutional investment funding - "QIBs") are not going to provide pre-construction phase project financing because the pre-construction phase has too many intrinsic risk elements that haven't been properly "nailed down" by the developer/sponsor group, so the exposure is (therefore) too high.  RMC receives a lot of phone inquiries relating to the golden question of, "where does the equity financing come from?"  Every project sponsor and/or developer seeks to make those pre-development phase dollars go further and create the kind of financial investment leverage that is essential to the complete capital funding plan of today's commercial real estate project.

The answer lies in a multiple prong type of approach that requires pain-staking due diligence be completed regarding all aspects of the capital funding cycle because one of the most intriguing methods of attracting institutional investor support is to tie the institutional investor's investment to some type of entitlement that does not require the project to be materially successful over the long-term operating window in order for the institutional investor to cash in on their investment.  Examples of this include:

• Grants - a pending grant can be assigned to the institutional investor as the investor's compensation guarantee.  This allows the investor to step outside the deal even when things don't look quite as rosy as you forecasted.

• Federal Incentives - a federal incentive is typically a tax-advantaged investment "product" like the "bonus depreciation expense allowance" or PAB tax-exempt bond financing.  PABs  are private activity bonds; a tax-exempt financing wherein an exception in the IRS Code is used to allow the project to utilize tax-exempt bond financing that is authorized to be used by specific issuers within a state.  In some cases, a PAB represents a "can't miss" funding approach that will make the institutional investor feel good about jumping into the transaction before the construction phase commences.

What are you entitled to have available?  Time to find out.  An entitlement review by RMC costs only $5,000 and the results could be truly earth-shattering for your bottom line.  Your capital funding plan proposal should take advantage of every possible alternative to the dreaded equity dilution hit that awaits the uninitiated.  Get some answers to all the burning questions from a consulting firm that is focused on development transaction fundings.  Rainmaker Marketing Corporation is here to help.