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Construction Financing - Continued...
The
structured finance approach to creating the condition precedents for
negotiating a non-recourse construction financing for a commercial
shopping center focuses on the following elements:
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Developer
Seed Capital. Instead of providing all of the equity (and the
developer can if the developer still desires) this structured
funding approach focuses on the developer providing only the seed
capital necessary to complete the design, construction, engineering,
site control and due diligence documentation - an amount in the
range of $300,000 to $500,000 on larger scale projects. These
funds are subject to withdrawal (under certain circumstances) if
sufficient at-risk equity capital contributions are found from the
other sources (see below).
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Condominium
Investment Plan Syndication Equity Capital. These are not
condominium plans created as a means of providing housing for
dwellers. This is a plan that is specifically designed to
provide capital financing at the terminal end of the construction
period. This results in lowering the loan-to-cost ratio of the
construction loan.
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Fractional
Tenants-In-Common (TIC) Plan Syndication Equity Capital. The
TIC plan is the developer's best friend in terms of equity
capitalization because there are fewer limitations placed on the
sales proceeds. This means the capital may be put to work as
early as the project's pre-construction phase - and that makes the
fractional TIC syndication even more interesting. In point of
fact, a "layered marketing plan approach" may in fact
allow the developer to withdraw the developer's seed capital as
early as the commencement of construction.
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Entitlement
Financing. Tax credits (including New
Markets Tax Credits and Bonus
Depreciation Expense Allowance Deductions) and other statutory
entitlements can make a huge difference as the benefits can be
traded for and/or used to purchase credit enhancement for the
construction loan, provide a means of further reducing the
loan-to-cost ratio of the construction loan by trading these
tax-advantaged products for cash (or what amounts to the same
thing). The key here is to only rely on those entitlements
that are authorized under statute without any substantive
qualification or allocation process requirements, as these are - as
far as the developer is concerned - a waste of time and money to
acquire.
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Construction
Mortgage Financing Loan. Now that we have all the other
elements in play, the negotiations for the construction loan can
move forward based upon a change that creates more equity financing
for the developer's benefit, while not necessarily limiting the
developer's ability to quickly withdraw the developer's seed capital
and put it to work on another project.
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Find
out what the future may bring your project. Talk to a Rainmaker Marketing
Corporation consultant
today. | |
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Do
You Know The Secret?
When it comes to commercial real
estate development finance, it doesn't matter whether you need to raise
$5 million or $50 million, the out-of-pocket costs, advance fees and
project due diligence costs will always require the same relative
investment dollars the promoters have to fund. Do you know what
that amount is? Do you know the Secret? |
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