Retail Property Investment Syndicates - TIC Plan Fractional Ownership

When compared to multifamily property fractional TIC plan syndications, retail TIC plans offer a larger measure of market optimization because of the length of the lease; typically one (1) year for multifamily properties and ten (10) years for retail properties.  The reverse side of this coin is that price increases cannot be as readily passed-thru to retail tenants.  However, most retail properties include a rent accelerator clause and/or a percentage rent requirement for sales above a certain threshold.  Having said that, the key to allowing a commercial real estate developer to enter the market and compete for capital financing lies firmly in the adoption of a capital funding proposal that has been structured in such a manner so as to allow the nascent developer to access non-recourse construction mortgage financing loans based upon an enhanced level of equity financing provided by layers of syndicate financing.

Most developers reject this approach out of hand because they believe the additional equity financing will come with a dilution of their equity interest.  This was certainly the case in the 20th century up until the end of the 1990s, but today it does not have to be the case.  The developers have taken themselves out of the market because they do not understand how structured financings can be made to work for their benefit.  This argument is over the incremental equity gain created over a given project's total development cost once the project has completed all construction activities and has leased-up to its maximum sustainable operating capacity.  This equity gain is computed on the basis of the operating income (EBITDAR) of the project being capitalized.  The resulting gain is - by and large - given over to the investors who put up the risk capital and who absorbed the market risk associated with the deal.  These investors are ALWAYS going to take the lion's share and the developer will only receive a tithing of this gain.  This fundamental investing fact of life means the initial equity pool is meaningless in terms of its impact because the conclusion is preordained.  

Rainmaker's approach is to incorporate these facts of life into a structured financing approach that includes:

• a condominium investment sales plan.  This is not the creation of housing for sale to the public as dwellings.  In this approach the condominium plan is used to create a leveraged financing that has a long-term horizon (the holding period typically being 7 years) and that creates funding for the benefit of the developer.

• a fractional tenants-in-common syndication sales plan.  As previously discussed, this plan has the capacity to provide funding as early as the project's pre-construction phase and that means it cannot be ignored; far from it, this structured funding source is too good to pass up.

• entitlement financing plans.  Entitlements can add an important equity financing component that can be used to purchase credit enhancement or provide additional equity contributions.  You need to have Rainmaker undertake an entitlements review as a program prerequisite.

Get all of the answers and get yourself your very own Rainmaker.  Call us today and see what greatness your project can really attain.