Commercial Construction Financing - Continued...

If you are seeking construction and permanent financing for your commercial real estate development program, then you need to have a command of the facts pertaining to the various funding alternatives that are available in today's capital markets.  To help you judge what needs to be done in your own particular case, please consider the following bullet-point summary of the choices awaiting you:

	Commercial bank lending.  Commercial bank lending programs make up the bulk of the development financing market.  Commercial banks compete for loans on the basis of processing speed, local market familiarity and strong marketing.  The downside to commercial bank lending pertains to credit and collateral.  Commercial bank lending is an industry based on strong credit being married to excessive collateralization - meaning the typical commercial bank loan requires you to post collateral equal to 150% to as much as 350% of the loan origination amount.  The outcome of this approach is to tie all your assets up with the bank, thus placing you in the enviable position of working for the bank even though your business card says something different.  Your growth potential, cash flow and profitability are all controlled by your commercial bank.  No wonder they smile.
	Institutional placements.  An institutional placement is a structured finance approach where an investment banker or mortgage banker "sells" your mortgage to a variety of institutions (that may - as it turns out - include commercial banks).  The resulting loan package typically provides more investment leverage to the developer and the development loan is typically non-recourse in nature.  The downside to the institutional placement is the timing.  The solicitation process can take months, so you need to provide adequate budgeting of your project carrying costs if you need higher leverage and a non-recourse outcome.  Collateral is frequently limited to the project assets only, so this may make sense for borrowers where some of the participants cannot or will not provide credit support for the transaction.
	Syndicate placements.  A syndicate placement is the sale (advance) of a portion of the proposed project to a commercial real estate investor syndicate (a group of investors who combine their money and purchase a real property interest in a project).  This requires some time and effort to make it work, but a syndicate can increase the cash closing proceeds of the borrower without necessarily increasing the borrower's exposure to equity dilution.  Now that should get your attention.

Talk to a Rainmaker and find out more.