Commercial Real Estate Bridge Loans, Mezzanine Financing & Equity Syndicate Fundings

Developers seeking commercial real estate bridge loans for new construction projects and mezzanine loans for equity gap financings are now faced with having to find ways to bring more equity capital to the closing table or face the reality of a failed project.  Rainmaker Marketing Corporation (in conjunction with our affiliate) has created a new equity financing program that is based upon a multi-tiered structured financing approach to meet the goal of eliminating developers' reliance upon mezzanine and bridge loans to round out the capital funding plan for commercial real estate development financing.  

The goals of this program are cumulative - as more and more equity contributions are brought to the table, another "layer" of benefits are created, to wit:

1. Level One.  At this level, the goal is to provide enough capital contributions to allow the developer to close on a commercial real estate construction loan with no regard to the recourse and collateral pledge provisions the loan agreement may mandate; then

2. Level Two.  At this level, the goal is to provide enough capital contributions to induce a commercial lender into providing a construction loan on a non-recourse basis and without cross-collateralization of the other assets of the developer; then

3. Level Three.  At this level, the goal is to provide enough capital contributions to induce a commercial lender to make a non-recourse construction loan and allow the developer to withdraw the developer's seed capital prior to the end of the construction phase; then

4. Level Four.  At this final level, the goal is to continue to provide equity contributions and apply these funds (net funds from real estate syndications) to debt retirement until the construction loan is retired/defeased.  

In the structured financing approach above, there is no mention of bridge loans, mezzanine loans or hybrid loans.  The reason for not using these funding resources is that the funders will require personal recourse on the part of the developer.  The result of this approach does not create financial investment leverage because the developer is still responsible for repayment if the transaction fails.  On the other hand, using real estate syndications to generate at-risk capital can create financial investment leverage.  This is possible because the developer can divide the project into a two-part financial opportunity where the developer owns the ongoing operating business interest (undivided) and the investor pool owns the real estate interest in the form of a condominium investment plan and a tenants-in-common fractional ownership syndication investment plan.

The resulting structure of the transaction's capital financing would be as follows:

• Developer capital contributions being made subject to being withdrawn if equity contributions are sufficient to allow the withdrawal to be approved by the lender.

• Entitlement financing of tax-advantaged incentives and/or tax credits that are used to purchase credit enhancement for the construction loan and/or buy-down the project construction loan interest rate.

• Condominium investment association plan for a portion of the inventory wherein the net sales proceeds of the condominium plan are equal to the capital financing requirements of the last 45 to 60 days of the construction phase.

• Fractional tenants-in-common syndication plans for providing at-risk equity contributions to meet the multi-layer program precepts and provide capital funding as early as the pre-construction phase.

• Construction mortgage financing loan for the balance of the financing requirements.

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