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Construction Financing - Continued...
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you can lock in your pre-closing
cost burden as early as the pre-construction period (when it should be
projected/estimated); and
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you can have the due diligence
review cover all of the exhibits required for syndication; and
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you can continue all of your
other capital formation activities, soliciting investment from whatever
quarter suits you, all the while the real estate syndication is running,
knowing you only have to accept the financing if the syndicate sales reach
the minimum sales target; and
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you can get a comprehensive
service that works for the good of all the parties even after the
syndication is successful.
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The syndication program can be
custom programmed by the developer. You can decide the stage where the
syndicate capital financing will be provided. You can custom calibrate the
yield weighting between the syndicate investors (on the one hand) and the
developer (on the other hand).
The syndication platform is designed
to:
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provide a means of bringing
capital investment opportunities to the market in a very efficient manner;
and
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provide a means of timing
investment based upon operating guidelines that make sense for the
commercial real estate development and financing industries; and
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provide a means of managing
transaction cash flows for the benefit of the syndication sponsor and the
investing-public so that all distributable income is disbursed as it is
earned each month (1 distribution per month); and
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provides a ready means for
collecting management reporting data pertaining to each project for each
month for the life of the project. This can even be further reduced to
the bi-weekly financial data reports that some projects will utilize; and
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provide the means to eliminate
the most common investment risk - bankruptcy risk exposure, construction
risk exposure and foreclosure risk exposure that can be achieved by the
continuing sales of fractional tenants-in-common real estate interests up to
an amount equal to the total development cost budget of the underlying
commercial income-producing property. (For more on how and why this
may happen, click here.)
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There are certain
kinds of investment risks that are inherent to every project. These risks
cannot be eliminated forever, just for the period of time while the project
developer/sponsor and the syndicate agree upon certain business matters.
This agreement creates the conditions required to eliminate the risk. The
most common risks the syndication platform may eliminate include the following:
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Construction Risk
(Classic Definition): the risk that construction activities are not
managed for the benefit of the lender and the equity investors resulting in
cost overruns due to delays, underestimation of the costs of construction or
what amounts to the same thing. The syndication platform's due
diligence program includes the requirement that all construction programs be
undertaken on a design/build basis thus limiting construction risk matters
to those matters that may be caused by inclement weather.
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Construction Risk
(Market Definition): the risk that construction activities will not be
managed for the benefit of the lender and the equity investors resulting in
a significant loss of capital due to pre-leasing losses when the
proposed project is not completed on time and customers walk away to
competitors. In rental housing and senior housing communities this is
a significant risk issue and the qualifying reasoning behind requiring every
investment to be a higher-yielding opportunity in order to reward this
risk-taking.
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Third-Party Claim
Risk: the risk that a third-party will make a claim against the business
resulting in a loss of value to the investors and the lender. This
risk cannot be eliminated and exists, more or less, in proportion to sales
activities.
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Bankruptcy &
Foreclosure Risk: the risk the project will not generate sufficient revenues
to pay creditors, thus resulting in a suit of foreclosure and/or a
bankruptcy petition being filed. If a sell-out occurs, then the
project will be capitalized with all equity contributions. All
long-term liabilities (and most short-term liabilities) will be
eliminated. As long as the financing remains in place, these assets
will be devoid of bankruptcy risk and foreclosure risk.
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Are you now seeing
the superiority of this approach over what you were taught way back in
B-school? Leverage is nice when everything is already in place and little
change is expected. Unfortunately, that is rarely the case in commercial
real estate development financing. Now there is a way to put an end to
these "deal-killer" risks.
Contact Rainmaker
Marketing Corporation and learn what we can do for you and your project
development ambitions. It's never too late to learn a new way of doing
things - profitably.
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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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