coopercash
2714 Posts |
 Posted - 08/23/2008 : 07:42:04 AM
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The past 18-months has seen a severe contraction in the number of banks and conventional financing institutions willing to finance developers of commercial, mixed use and master planned community projects.
Within the past ten weeks, four major national banks have gone so far as to literally "pull the plug" on established developers with potentially successful projects under way, on schedule and on budget. Reason? Banks are under pressure to improve their liquidity and are simply refusing to provide further draws to developers with a written notice that they want the current loan balance to be paid off ASAP.
Currently, 98% of conventional commercial lenders are "allergic" to funding real estate development projects commercial or residential.
Aside from the opportunity to meet the challenge of "Developer Refi Rescue", there are numerous developers sitting on viable projects, already fully entitled and with solid exit strategies that they cannot secure financing for in the present climate.
Is anyone willing to meet this opportunistic challenge? YES! A number of VERY high net worth private investors have an eye on the potentially attractive returns that can be achieved by providing "alternative" project financing. Their problem being that while they have the capital to invest, they have no organizational or administrative capability to manage the underwriting process, much less do they have the ability to reach out into the targeted market with a Program.
Solution? Enable those private investors to appoint an existing commercial lender who will develop a fiscally sound funding Platform supported by private capital and take over the entire marketing, due diligence and underwriting process. The investor(s) are then left with the right to approve or decline an opportunity that has been thoroughly pre-screened by the Program Manager.
I have associated myself with a commercial lender who has implemented just such a Program which is being SELECTIVELY offered to qualifying developers meeting key criteria: 1- Proven track record of development success; 2- Meet acceptable CASH LIQUIDITY levels; 3- Maintains a strong balance sheet; 4- Exit strategy whether via lease-out or end sales MUST be viable within current and projected market conditions.
In other words, if the developer is close to "broke" and the project is a "dog" don't even bother to send me an email inquiry!
Minimum funding is $25-million and projects of up to $125-million will be considered.
What's the "catch"? I mentioned above that the investors supporting this program are "opportunistic". They will ONLY participate on a debt/equity basis which means that the investor will require 15% equity in the project and a "seat on the Board". Board representation is not to cause interference but to provide assurance their capital is being used properly and that progress timetable tables are adhered to on a cost-efficient basis.
Cost of debt provided? Depends on a number of factors among which are financial market conditions. AT THIS TIME, deals are being confirmed at between 6.75 and 7.95 on a term of 120-months. This particular Program is interest only with interest being paid 12-months in arrears. Total of 6-Points charged and collected at funding.
Front end costs and procedures will be fully explained to the client prior to and during the conference call that will be scheduled by the Program Manager assuming that there is true merit to the project and the developer.
I am going to advise you that front end costs are moderate when seen in the context of the amounts of capital to be financed but again if the client is on the brink of fianncial collapse they will NOT be able to meet those costs and neither will they pass the "liquidity test".
Here's a brief run down on those costs because the last thing I need is a "flood" of UNQUALIFIED inquiries which I have to preview prior to submission to the Program Manager!
Assuming the applicant and project get to the Conference Call stage here's what to expect assuming that all parties wish to engage:
1: A LOI and Engagement Agreement will be provided at which point the client signs the LOI and Agreement and returns with a conditionally REFUNDABLE $10,000. That money is applied towards file review and preliminary processing. If the LOC terms when provided reflect any material changes that are not in the interest of the client versus what was offered in the LOI the the client can withdraw and will receive a refund of their $10K.
If however, material negative factors (whether known or unknown to client at time of application)cause those terms to be adjusted or even to have their application denied then the deposit is NOT refunadble. IT IS FOR THIS REASON THAT THE PROGRAM WILL NOT ACCEPT A "NEW" DEVELOPER WITH LITTLE OR NO EXPERIENCE!
2: Assuming we get to the LOC stage, the client will then be required to PROVE LIQUIDITY by placing a negotiated amount into a bank escrow account opened in the name of the Developer's project LLC. Those funds REMAIN UNDER THE SOLE CONTROL OF THE CLIENT and will remain in that escrow account until the loan is funded. Following funding, the escrow obligation is released and the funds are again available to the client. That liquidity deposit must be sourced from the developer's reserves and/or contributed by partners, co-Principals, friends, family or even by their own bank if the client has collateral assets to satisfy their banker.
The amount of liqudity is based on the project funding. Example... a loan of $25-million will require a liquidity escrow of $1-million. A loan of $100-million will require a liquidity escrow of $3-million.
3:The investor uses a leveraging technique which covers the equity component and will require the client to pay for a Bank Guarantee which they lend leverage. The cost of the Bank Guarantee, which is PROJECT/CLIENT SPECIFIC will be established prior to it's purchase. Again, using the $25-million funding example the cost factor will be around $250K.
4: IMPORTANT: THIS PROGRAM DOES NOT PROVIDE A "BAIL OUT" FOR DEVELOPERS WHO ARE FACING A LIQUDITY CRISIS WITH THE POTENTIAL FOR FORCLOSURE OR BANRUPTCY.The Developer and the project need to evidence viability and exit strategy strength.
5: Projects in the Caribbean, Central America and Mexico are open for consideration and please be aware that there will be additional costs for ON SITE inspections, U.S. MAI Appraisal, and we reserve the right to appoint a local Project Manager if necessary. Developer MUST have 15%-30% "in" or available.
The above profile should be understood as being a fair and accurate Program description at this time and all components of the Program are subject to change or even withdrawal at any time based on market circumstances.
If you have a project that would like me to consider here's what I need: Please email me a well presented EXECUTIVE SUMMARY of not more than 12-15 pages accompanied by the developer's resume. If the developer has a project website then please provide the address. If you are not sure about how to prepare an Executive Summary please request an example format.
If I believe that the project is worth pursuing I will then request the developers corporate and personal financial statements prior to scheduling a conference call between the Program Manager and the client.
IT IS IMPORTANT THAT THE CLIENT BE PROVIDED WITH AN OUTLINE OF HOW THE PROGRAM WORKS AND WHAT IS EXPECTED OF THEM BEFORE THE CONFERENCE CALL. I do not want any "surprises" when Terms of Engagement are discussed! I would also prefer that the developer has their CFO participate in the call and, if available, their corporate attorney.
B/O MEMBERS: If you have questions regarding the program PLEASE EMAIL ME DIRECTLY rather than posting on this "Announcement". My email address is: coopercash@earthlink.net and please be sure to include your company/business name and contact phone #s
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