Real Property Syndications & Other Project Funding Programs...

If you are seeking information on project funding alternatives and you have not given consideration to a real estate syndication or private placement offering to the institutional market, then you need to be thinking about these alternatives because they can be the difference between a successful development and utter failure.

Consider the following analogy:

The ABC Senior Housing Development Company (ABC) is developing an assisted living project within the continental United States.  The company is developing a project with an average cost of $200,000 per living unit for a 60-bed ALCF.  It's a $12 million project.  The mortgage will provide $9 million, so $3 million in equity is required.  If 20 of the property's living units are sold via a real estate syndication via a "stated yield" transaction approach setting a unit sale price of $150,000 per unit, then the $3 million is up and the company can take its equity off the table and forget about equity dilution.

Here's why it's important...

In a stated yield transaction, the investment yield target and time are the important issues.  The developer wants a way to get the inventory back down the road and the investors want a deal that has a high likelihood of actually meeting expectations - even though the company is developing a project in the midst of the current macro-economic disaster.  

Stated yield approaches do that.  There is a high likelihood of success because the deal metrics were sized by experts and not guessed at by novices.  The target holding period chosen was seven (7) years and the stated yield was 25% per annum; or 175% total yield over that 7 year holding period.  The business deal says the developer will pay the investor an amount equal to 175% of their original $150,000 investment - or $262,500, less any amounts paid out to the investor in the intervening years.  The business deal says the investor will receive the depreciation income (big value) plus 50% of the routine rental revenues generated by the unit.  The unit is expected to rent for $3,000, so this would provide $18,000 a year for 7 years, or some $126,000.  This means the developer will have to pay an amount to the investor equal to an additional $136,000, so where will it come from?

Over the 7 year holding period, the property will be developed and stabilized.  The property will begin to accrete in value.  In seven years the property will generate significant appreciation gains.  Note that the unit cost $200,000 to develop but we sold it for a loss to the investors for $150,000 - a 25% discount.  That discount now works for the developer and the investor as the developer will only have to pay a portion of the gain to the investor in order to get all the inventory back.

The investor got what the investor was looking for and the developer did too!

So, is it a TIC plan real estate syndication, a condominium plan syndication or a private placement offering?  Which works best for your needs?  To find out take advantage of a free initial consultation with Rainmaker Marketing Corporation.