Advantages to the Borrower

  1. Up to 85% of the capital stack provided.

  1. Borrower receives 51%+ of the cash flow and net residual proceeds with a significantly smaller equity component than traditional construction loans.

  2. Borrower retains more control over the asset than a traditional joint venture structure.

  3. Borrower retains all of the income tax benefits generated from the investment (consultation with Borrower’s income tax consultant is advised, however).

  1. Size

  2. $25 - $50+ million; Major and Secondary Markets

  3. Loan to Cost

  4. 80% - 85% (verifiable land equity may be considered in the cost)

 

  1. Pro-forma LTV

  2. Up to 75% +/-

  3. Terms

  4. Flexible; 3 - 7-year range works best; structured like a typical construction/permanent loan

  5. Targeted Locations: Focus on downtown walkable and/or TOD Sites

  6. Pricing

  7. This is a total return product for the Lender:

  8. Fixed-rate coupon in the 4.5%+ range (accrues during construction until breakeven)

  9. Lender shares in a portion of the property cash-flow and net residual (at the FMV) upon loan payoff.

  10. Lender requires an IRR look back to a minimum return of 7% (calculated at payoff – this is a floor return, not a capped return).

 

  1. Prepayment Flexibility

  2. Tailored specifically to the deal.

 

  1. Guaranty

  2. Completion and carve-out guaranty; no repayment guaranty required.

  3. Commitment Fee

  4. 1%.

 

  1. Good Faith Deposit

    Negotiable (typically 1%-2%).

General Information

Initial pro-forma returns on project cost of 6-6.5% +/- (first year NOI/project cost); up to 3%+/year trending may be used in justifiable demand/supply situations

Borrower’s equity invested/contributed first; debt funding follows

 

Interest is only charged on the portion of the loan which has been funded at any given time

Loan is funded similar to a bank construction loan

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