Commercial Real Estate Loans & Syndications

Whether it is development or acquisition related, commercial real estate loans have their own place in the capital funding matrix and strategy you need to employ for successful project outcomes.  All things being equal, construction phase commercial real estate loans represent the hardest placement within the commercial real estate financing lexicon.  The reason a development loan is the most difficult financing to obtain because there is no existing income-producing asset for lenders to underwrite.  This means the entirety of the owner's program must be qualified, quantified, and given due consideration prior to the issuance of any kind of financing commitment - and this is where we can help you the most.

Most commercial real estate loans require excessive levels of collateralization.  Collateral is the name of the game in commercial banking circles and you need to be aware of the fact the collateral has to exceed the loan amount and we're not talking small numbers.  There are are plenty of commercial real estate loans being routinely underwritten with collateralizations equal to greater than 250% of the loan basis, so be prepared to watch your assets become tied up by the lender.  It's the nature of the beast and you should plan on nothing less than 150% and be prepared (in certain circumstances) to go as far as 350%.  This is a tough hurdle to make happen, but if there is no collateral pool then the next step should be a fractional real estate syndication to increase the equity capitalization to a point where the lender can be induced to make the loan.

This is where an understanding of public financing programs and incentives provided at the local, state and/or federal level can make a difference.  For example:

• For multifamily housing transactions, HUD provides a loan insurance guarantee to the lender that serves to replace the credit and assets of the borrower with the assets and credit of the federal government pursuant to Section 232, Section 221(d)(4), Section 202 and others.  The downside is the application period requires at least six (6) months in most cases (if not more) and the requirement for complete development due diligence documentation that can reduce your financial investment leverage significantly.

• For transportation sector projects, sponsors  can turn to the states and federal government to provide additional funding that can be used (in some cases) as equity gap financing, subordinated construction financing and even direct grant investment.  You need to be up to speed on the various titles, so check with RMC.

• Most states provide for reductions in property taxes for the purposes of increasing the near-term window earnings via the use of a TIF plan, CDD plan or PILOT plan.

You may also wish to give careful consideration to the sale of fractional ownership interests for the development program as early as the pre-construction phase and for projects having development budgets of at least $2.5 million.