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Section 1031 Investments - Higher Yielding Investment Programs
The
Rainmaker syndication program focuses on changing the basic investment dynamics
primarily owing to the development financing of commercial
income-producing real estate properties. Syndicates can also be
formed for the purposes of acquiring an existing income-producing
property, but these types of syndicates have, as a general rule, small
equity gains and are purchased for a long-term share of the monthly
profits. Commercial real estate development projects (when
successful) turn into existing income-producing real estate properties,
but also offer the investor the opportunity to participate in the much
larger equity gains created in the period prior to the date the project
is placed in service. The key is to create a program that
commercial syndicators will find attractive, therefore;
the analysis focuses on the Pre-Construction Phase Syndicate and the
Construction Phase Syndicate. When
an entrepreneur undertakes to launch a new business that is based upon
the premise of creating a commercial income-producing real estate
property, the entrepreneur is primarily concerned with constructing all
the improvements, buildings and structures required at a defined site
location. Accordingly, the capital investment made in the
formation and development stage (the pre-construction period and
construction period) typically enjoys an impressive boost owing to two
(2) main principles:
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The
principle that the separate cost of the materials and labor required
to erect the buildings and structures is not as valuable as the
completed building; and |
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The
amount of equity investment required for a commercial real estate
development project may run as low as ten percent to as high as
forty percent - it is an incremental part of the total capital
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So, when
an asset increases in value only 12% as a result of completion of
construction operations, but this gain may be allocated for a variety of
purposes and allows for the opportunity to have a clean transaction
partition. The new syndicate is funding out the total development
cost plus the equity gain and then holding the investment for a much
longer time to get the same gains the construction phase investors
received. Looking at the old syndicate, it is easy to see how the
changes in financial investment leverage result in proportional gains in
the actual cash-on-cash returns of the assets. This will always be
true (note the table - it is easier than explaining it sometimes).
The gross return is then divided by 1 (for one-year holding periods), or
divided by 2 (for two-year holding periods) or divided by 3 (for
three-year holding periods) in order to derive the annualized
cash-on-cash return for the asset holding period. The
syndication platform allows the developer to further increase the
developer's financial investment leverage by substituting the
syndicate's capital investment. This additional leverage manifests
itself in the number of projects the developer can sponsor at any one
given time, based upon an assumed finite pool of capital. | |
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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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