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Obtaining
pre-construction phase project financing
in the institutional market is no cake-walk and we recommend
consideration be given to selling real property interests (via a
qualified real estate
syndication plan). In most cases,
qualified institutional buyers (the "life-blood" of
institutional investment funding - "QIBs") are not going to
provide pre-construction phase project financing because the
pre-construction phase has too many intrinsic risk elements that haven't
been properly "nailed down" by the developer/sponsor group, so
the exposure is (therefore) too high. RMC receives a lot of phone
inquiries relating to the golden question of, "where does the equity
financing come from?" Every project sponsor and/or developer
seeks to make those
pre-development phase dollars go further and create the kind of
financial investment leverage that is essential to the complete capital
funding plan of today's commercial real estate project. The
syndication approach provides the tools to allow the developer (in
certain cases) to access non-recourse construction financing by
increasing the equity capital to an amount sufficient to induce the
lender to make the loan on a non-recourse basis.
The
answer lies in a multiple prong type of approach that requires
pain-staking due diligence be completed regarding all aspects of the
capital funding cycle. One of the most intriguing methods of
attracting institutional investor support is to tie the institutional
investor's investment to some type of entitlement that does not require
the project to be materially successful over the long-term operating
window in order for the institutional investor to cash in on their
investment. Examples of this include:
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Grants
- a pending grant can be assigned to the institutional investor as
the investor's compensation guarantee. This allows the
investor to step outside the deal even when things don't look quite
as rosy as you forecasted.
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Federal
Incentives - a federal incentive is typically a tax-advantaged
investment "product" like the "bonus
depreciation expense allowance" or PAB tax-exempt bond
financing. PABs are private activity bonds; a
tax-exempt financing wherein an exception in the IRS Code is used to
allow the project to utilize tax-exempt bond financing that is
authorized to be used by specific issuers within a state. In
some cases, a PAB represents a "can't miss" funding
approach that will make the institutional investor feel good about
jumping into the transaction before the construction phase
commences.
What
are you entitled to have available? Time to find out. An
entitlement review by RMC costs only $2,500 and the results could be
truly earth-shattering for your bottom line. Your capital funding
plan proposal should take advantage of every possible alternative to the
dreaded equity dilution hit that awaits the uninitiated.
Commercial investment
real estate just got a little bit easier.
Get
some answers to all the burning questions from a consulting firm that is
focused on development transaction fundings. Rainmaker Marketing
Corporation is here to help. We offer a full array of services
designed to help today's savvy developer move their project forward
aggressively. Start with the best.
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