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Syndications are the real opportunity in a recession that can beat the odds and senior housing is the industry to do it with...

Private Activity Bond Financing...

A private activity bond financing (also referred to as a "PAB") typically takes the form of a tax-exempt construction and permanent financing wherein an authorized issuer (within the state where a commercial real estate development project is located) provides the necessary access for the developer/sponsor for construction phase and permanent mortgage financing. All private activity bonds are authorized via a change in the IRS Code enacted by Congress as an exception to taxation that a specific state may offer.

In general, private activity bonds are a federal entitlement where (in most cases) the amount of private activity bond authority granted to each state is based on a per capita formula for the purposes of making the entitlement fair and reasonable. Once the private activity bond financing pool has been authorized, the corresponding state bond commissions adopt rules pertaining to the application and approval of projects and issuers. Once the rules are promulgated, you may seek out an authorized issuer. The authorized issuer is the entity that actual issues the bonds and receives the net financing proceeds that, in turn, the issuer then lends to the developer/sponsor's project via a loan agreement that is part of the bond indenture. In many cases, the costs for the PAB process end up being being prohibitive compared to those of a commercial real estate syndication (click here to download the Powerpoint presentation on this topic).

In many cases, the provision of additional private activity bond authority is attached to a specific area that is blighted or has suffered a major disaster. In recent years, these additional private activity bond financing have been made available for disaster relief for areas impacted by the 9/11 attacks (the "Liberty Zone"), Hurricane Katrina, Hurricane Wilma and Hurricane Rita disaster areas (collectively, the "GO Zone"). Congress now uses the "GO Zone" nomenclature to describe any area requiring federal assistance to recover from a given natural or man-made calamity.

The rules for qualifying uses are typically delineated into two (2) separate pools: (i) a housing bond authority to stimulate the production of for-sale and rental housing units; and (ii) a business pool for all other types of qualifying uses. In both cases, politics (and not market economics) dictate what the qualifying uses will in fact be and what limitations there may be on the qualifying use. If you think a GO Zone bond or other PAB is the magic trick you have been looking for, you need to come to grips with the following issues:

Legal & Organizational Costs. You will have some hefty legal bills to get a PAB issue done. You must cover the costs of the issuer's counsel, the cost of the investment banker's counsel and the costs of your own legal counsel. This typically requires around $300,000 in committed expenditures and you will have to fund roughly $100,000 of these costs in advance of the closing of the issue at a bare minimum.

Carrying Costs. In most states you will have at least 120 days of carrying costs associated with the approval process through the state bond commission. There will be a host of associated costs to go with the carrying costs including inducement fees and similar costs.

Market Acceptance. You will have to produce a full-scope market feasibility study that documents all of the particulars of the proposed project. If your project is dependent upon future leasing activity, there will be the expectation of a certain level of pre-sales/pre-leasing that is achieved before the issue can be closed. This means commercial underwriting standards will be applied just like any other private placement offering of securities, so consideration should be given to this salient fact (i.e.: compare this versus the market potential for a 100% LTV non-recourse EB-5 private placement joint-venture).

This discussion continues on the following page.

About Rainmaker...

Rainmaker Marketing Corporation is the brainchild of Clint Lovell, a seasoned business finance consultant with more than 20 years experience. Rainmaker is a B2B consulting firm that was incorporated in 1994 for the purposes of providing market feasibility studies to businesses seeking capital financing in the commercial and institutional markets. Today, Rainmaker Marketing Corporation provides a comprehensive array of due diligence documentation services for most major industry groups. Rainmaker Marketing Corporation also provides syndication management services for fractional commercial real estate syndicates that can provide mezzanine gap funding for income-producing commercial property developments as early as the pre-construction phase. Rainmaker Marketing Corporation serves clients throughout North America and the Caribbean Basin.

Rainmaker Marketing Corporation, Inc.

15519 Dawnbrook Drive, Houston, Texas 77068

281.537.1200

consultants@rainmakermarketing.com

A Few Words on Change...

Clint Lovell, the Managing Principal of Rainmaker, has written a book on the subject of capitalism and the creation of a new economic society that ends our reliance on taxation and retires all of our national debt. The book is called The Fix and you can order an advance copy now at www.the fixbookstore.com. Order today and we'll pay your shipping, saving you some real change.

What's New...

Read our latest whitepaper on capitalization strategies and commercial real estate syndications that provide developers with a new arsenal of capital finance weapons they can deploy in the middle of this recession. Click here and download the whitepaper free!


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