Medical Office
Building Syndicate Financing...
Continued
from page 1.
Here's an
example...
The Acme
Development Company is sponsoring the development of a $10,000,000 MOB
project. Acme believes they can obtain a development loan in the
gross amount of $7,500,000. The fees on the loan are projected to
be $150,000. The additional working capital required for finance
and carrying costs of the project works out to be an additional
$350,000. This brings the total project cost to $10,500,000.
This means the syndication must provide net financing proceeds in the
amount of $3,000,000. The syndication platform fee is 8.00%, so
the $3,000,000 is divided by 0.92 to derive the gross syndication - or
$3,260,870 (rounded). The platform fee (i.e.: profit on sale) is
$260,870 and is paid out of the syndication sales proceeds and gives us
a total of $3,000,000.
Read
on...
The
resulting syndication is a Pre-Construction Phase Syndication because
the developer doesn't have (in our example) a bankable firm commitment
for the construction mortgage financing loan. Among other things,
Pre-Construction Phase Syndication investment holding periods are
limited to no more than three (3) years and must provide a potential
return of 150% to 300% (or a return of 50% to 100% per annum).
This means the developer must provide a distribution plan that provides
a return of 100% of the $3,000,000 plus an additional return of 50% to
200% over the period. In this case the developer believes the
syndication will provide a total yield of 200% - or $6,521,000 over the
course of the projected holding period. In this case, Acme's due
diligence suggests the project will require a total of 18 months to
develop, construct and fully stabilize and the projected EBITDA
(operating income stream) is believed to be 10.00% of the total basis of
$10,500,000 or $1,050,000. The available refinancing will be based
upon that income with an imputed debt service coverage requirement of
1.20. This means the loan will be limited to $1,050,000 divided by
1.20 and converted into a payment stream based upon an assumed interest
rate of 6.25% and a 25-year amortization schedule. This works out
to around $875,000 being available to support debt service and that
converts into a mortgage of $11,053,516, creating a gross yield of
$3,814,386 to the Syndicate and that works out to an annualized
cash-on-cash return for the investors of 77.98% per annum!
Medical
Office Building ("MOB") project development and construction
capital finance is now a lot easier than it used to be when the
outpatient services boom first began in the late 1980s. Today, the
MOB developer (or owner/operator, as the case may be) has a level of
capital funding access unheard of in commercial real estate development
and Rainmaker Marketing Corporation stands (once again) at the forefront
providing the tools and capital markets required to keep the wheels of
commerce moving smoothly along.
Rainmaker
Marketing Corporation is the commercial real estate development finance
consulting firm to turn to for all your underwriting documentation
needs, including:
