Condo Plans - Continued...

Commercial real estate condominium association plans are just part of the transaction structure Rainmaker Marketing Corporation typically employs for the benefit of commercial real estate developers and the commercial real estate investing-public.  Our structured finance approach to commercial real estate allows us to turn a housing sales program approach into a powerful commercial real estate financing tool.

How is this done and why would it apply to your circumstances?

Well, you have to understand the limitations that can effect a given commercial real estate structured financing, to wit:

1. At-Risk Seed Capital - from the developer.  These funds are used to define the project's parameters in terms of capital financing, development, construction and future operations.  The typical commercial real estate developer is putting up between $250,000 to $400,000 to complete these due diligence activities and make the proposed project ready for financing.  Along the way, the developer must also come out-of-pocket to pay the costs associated with controlling the proposed project site.

2. Entitlements Financing.  The type of project being developed dictates which statutory investment incentives will be part of the project.  Nearly all entitlements require the project to be placed in service prior to the entitlement vesting to the sponsor.  This means you have to complete construction and commence operations to get the incentive (called a "spiff").  Instead of discounting the value to the beginning of the construction phase (where in days gone past, institutional buyers would dramatically discount the entitlement's value to adjust for risk), we seek to use it to purchase an interest rate buy-down or credit enhancement for the construction mortgage financing.  This approach can be added without creating any additional drag on the capital funding structure because the value wasn't going to really be seen to play a part that early in the process.

3. Condominium Investment Real Estate Plans.  Here we take a portion of the project space plan and entitle it as condominium air-rights and sell it to the investing-public for the purposes of generating additional at-risk equity contributions that can be applied against the outstanding construction indebtedness.  In some cases, the funds may also be used in the last 45 to 60 days of the construction cycle.  This could be as much as 10% of the total construction budget and that means the condominium plan is worth doing on each and every project where the benefits exceed the cost ratio.

4. Fractional Tenants-In-Common Real Estate Syndication Plans.  A TIC plan can be created for the space not otherwise encumbered by the condominium plan and the at-risk contributions may be applied as early as the pre-construction phase.  That means TIC plans can be part and parcel to the successful capitalization of the project on a four-tier level approach as follows:

   1. First, the goal of the TIC plan is to cover the equity gap - the difference between the total development cost and all other sources of financing.  The net sales proceeds are used to provide the developer with enough equity to close escrow on a commercial mortgage financing loan; then

   2. Next, the goal of the TIC plan is to continue selling real property interests (deeded ownership!) until there is enough capital contributions on the table to induce a lender into making a non-recourse commercial mortgage loan for the project; then

   3. Thirdly, the goal of the TIC plan is to provide enough capital to obtain the non-recourse loan and allow the developer to withdraw the developer's seed capital (making the capital available to be used on another project immediately - a process called "re-leveraging"); then

   4. Finally, the final sales goal is to sell out the entire issue, pay off all indebtedness and thereby insulate the investors in the syndicate from total loss of investment due to foreclosure or bankruptcy.