Pre-Construction Phase Project Financing - Continued...

Syndication Flexibility.  The core of the zero-coupon approach is to discount the forward construction value so that the take-back guarantee is not dependent upon the future financial condition of the developer entity and replaces it with a guarantee based upon market conditions that are demonstrably obtainable.  The most common structure is to discount a portion of the construction program by a third and then have the 7-year guarantee to be 175% of the syndicate's basis.  The developer pays out an amount equal to 25% of basis over the 7-year holding period (making the imputed interest carry not a materially-significant event in the development), so that the buy-back assumes the completed property will be worth the same amount it costs today to build at the end of term.

The secret to pre-construction financing is understanding the timing of the various financial products that are out there today and recognizing what their limitations are in terms of a specific project proposal:

	Private Activity Bonds.  While the bonds are authorizes by statute, developers confuse the authorization as a guarantee of financing and this is patently false.  Whether the private activity bonds (called "PABs" - P-A-B-s) are tax-exempt or not, the proposed capital financing must go through underwriting like any other transaction.  In point of fact, private activity bonds usually take longer to arrange and come with so many reporting obligations so as to not warrant their use as systemic means of capitalizing a commercial income-producing property development program.
	Tax-Incremental Financing Plans.  The TIF plan uses an assignment of future property tax revenues associated with the development of a given project (and it usually has to be a retail or mixed-use deal) as the means of guaranteeing the property will perform on all of its covenants pertaining to the financing.  The end-result is usually a bond offering by the district - but only after the inevitable lawsuits are all successfully rebuffed in court.  The big issue facing every TIF plan is that they are magnets for lawsuits, so they take a huge bite out of the developer's seed capital, because; nobody invests in a deal that has lawsuits pending.
	Community Development District Plans.  CDD plans are used to pay for public area improvements like infrastructure, walkways, roads and parking areas.  The CDD plan has only one use - exit financing that allows the developer an additional means of profiting from the deal, but it provides nothing in the way of support for the construction phase capital outlays.

To find out more, contact a Rainmaker Marketing Corporation consultant today and get the answers you need to your burning questions.

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