Commercial Real Estate Development Financing

The commercial real estate development financing market continues to evolve and change as the expectations and goals of developers and investors change.  Today, commercial real estate development financing includes:

• Construction loans secured by a mortgage tied to the commercial real estate development loan (the mainstay funding product for the industry); and

• Private placement offerings of equity, preferred equity and/or convertible securities to provide both equity and debt capital subject to an exemption under the Securities Act of 1933 and usually for institutional investors and/or hedge funds; and

• Real estate syndications to provide equity funding for projects seeking to qualify for a construction loan, or to replace construction loans altogether (100% equity financing).  Rainmaker has exclusive access to a syndication program that can support projects having development budgets of at least $2.5 million.  Syndications may be available for funding as early as the pre-construction phase and as late as the date that stabilized operational capacity is attained.

Each approach has its own risks and rewards that require careful consideration prior to creating the final capital funding plan proposal for the project.

Rainmaker's approach is to:

• First, review all entitlements to determine the availability of investment incentives that are authorized pursuant to a local, state and/or federal statute.  These entitlements can be contrived to create an annuity based solely upon the entitlement and not upon the real property or business prospects of the underlying project.  Understanding the totality of the impact this approach can have is central to the success of the developer's program; then

• Next, the capital funding plan is analyzed (best-case, middle-case, worst-case scenarios) to determine how the entitlements can best be employed for the benefit of the project, the lender, the investors and the developer; then

• Next, the syndication due diligence period starts and the resulting documentation forms the backbone of the syndication; then

• Next, the syndication-based capital funding plan is prepared and approved by the developer/sponsor and realestateplays.com (the syndication platform); then

• Next, Rainmaker reviews the entirety of the syndication file to determine:

  • The applicability of the exhibits to the pending transaction; and

  • The thoroughness of the exhibits to the pending transaction; and

  • The likelihood of the developer in creating the stated outcome set forth in the business deal.

• Next, the syndication "goes live" and the 90-day marketing period begins for the syndication of the project.  If 100 units are sold (netting the project $2,300,000 in syndication proceeds) then the developer is bound to accept the funding and a second syndication is undertaken for a number of units required to completely fund the project using the tenants-in-common syndication method.

• Finally, upon completion of the syndication process, the transaction closes, units are transferred to the buyers and the net proceeds of the syndication are turned over to the developer to use in accordance with the contractual obligations that form the business deal of the syndication.