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| | Non-Recourse
Condominium Construction Financing - Continued...
Continued
from page 1...
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Developer
Seed Capital. The developer's seed capital (typically
$300,000 to $500,000 depending upon the complexity of the
project and total development budget) is used to "prime the
pump" of equity financing syndications (condo plan and TIC
plan) and pay the costs of completing the due diligence
activities that substantiate the market opportunity, financial
opportunity, project design requirements, environmental,
engineering, construction costing and contracting. The
object here is to withdraw the developer's funds once the
non-recourse loan threshold for capital contributions has been
crossed. The clear objectives here are to define the
project's construction program to the greatest detail possible,
complete all related engineering studies (environmental, MEP,
structural, civil and specialties), define the operating
envelope in its entirety and complete all plans and preparations
for pre-opening marketing and sales programs. |
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Non-Recourse
Construction Mortgage Financing Loan. Now we are looking
at a construction loan that has a loan-to-cost ratio in the
range of 55% to 65% - definitely making the project eligible for
a non-recourse construction loan from a third-party commercial
lender (or what amounts to the same thing via the private
placement offering approach for these securities). |
This
approach to commercial real estate development financing will work
for all types of projects including:
All
commercial banks are authorized to make non-recourse condominium construction
loans. All of them... Some
commercial banks have a policy of making loans only on the basis of requiring
personal recourse. These institutions are to be avoided at all costs
because they are predatory lenders who are not going to be happy until they
control all of your assets, your cash flow and your personal ability to profit
from a business venture. Remember the old "company town"?
Guess what? It's still alive and well. When you do business with
predatory commercial banks you dance to their tune or they take away the song,
the band, the stage, your eye-teeth and everything else. Life's too short
for that. In
most transactions, the issuance of a loan commitment for a construction loan
will include personal recourse if the bank's financial analysis indicates there
is insufficient collateral provided to allow the bank to fully recover in the
case of a project failure. Your
first question should be: "how big is the gap we need to fill?" Your
first response is to find out the amount and then compute whether or not you
have the cash or:
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You
can raise the cash with a real estate syndication; or |
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You
can incorporate a tax credit-based equity syndication into the transaction;
or |
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You
can resort to raising more cash by diluting your position in the deal. |
Which
goes when? Turn to Rainmaker Marketing Corporation and get more than bank-speak. Get
information that you can use and advice that will carry you forward - not
revisit the failings of the past. | |
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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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