Multifamily
Housing Investors - Continued...
The
impact of direct market syndications by commercial real estate developers
suggests a future transaction structure that serves to directly replace and
reduce the Loan-To-Value (LTV) ratio of the construction loan by using
multifamily housing investors at the real property ownership level and not the
equity level. At some point in this capital allocation process there will
be sufficient cause for the lender (or other multifamily housing investors) to waive personal recourse and the
cross-collateralization and cross-default clauses that only serve to shackle
developers, but provide little protection to the lender in the case of a
systemic lending crisis. The pecuniary interest is served because the real
property syndication increases the likelihood the developer will risk capital if the fundamentals support the
project because a higher degree of "certainty of outcome" is now
available to the developer.
The
certainty of outcome concept benefit is one of the most important conceptual
benefits because it combines the benefits of syndicating real property interests
(in lieu of the riskier/more expensive equity securities syndication) and the
benefit of a schedule that is more clearly defined in terms of obtaining the
desired result - no more capital outlays by the developer because the capital
budget is fully funded from third-party sources. Long experience has shown
that the cost of capital is not as important to commercial real estate
developers as is the availability of capital funds because all commercial real
estate development programs have a defined window of opportunity that must be
met or all would be lost.
The
final outflow is the creation of a budget that offers a higher degree of
confidence as to outcome because the vagaries surrounding and impeding the
commercial real estate development project's pre-construction phase have been
dramatically reduced, thus reducing the opportunities for budget busting.
What
does this mean to you?
-
It
means you can create a more reliable financial transaction template.
-
It
means you can squeeze excess fat out of the working capital budget.
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It
means the pre-construction phase may in fact be dramatically shortened.
Time
to talk to a Rainmaker consultant. The initial consultation is free, but
the advice will be truly priceless.
