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| | Commercial Real
Estate Syndicates - Continued...
If the syndicate sells the minimum requirement ($2,500,000 or the
difference between the total project capital budget and the project
mortgage financing, whichever is greater) then the sales continue up to
an amount equal to the total project budget plus the assumed profit
spread derived from refinancing or selling the property once it is fully
stabilized. If the project involves major construction (and most
of them do) then the syndication holding period is limited to three (3)
years as a general rule. This means the sponsor has to get the
project constructed, opened, operating and stabilized at its maximum
sustainable occupancy rate within three (3) years or it is not (as a
rule) eligible for syndication without an even more detailed review by
the syndication platform than there would otherwise be if the
syndication holding period was less than three (3) years. Projects
that are acquisitions that have already completed all substantive
construction operations and are under continuous operation are assumed
to have holding periods of 7 to 10 years because the gains are only
incremental to the gain of the syndicates that have construction and
development operations still pending.
The
syndication platform takes the mystery out of investing. There are
three (3) types of syndicates that can be formed:
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Pre-Construction
Phase Syndicates. In general, these kinds of syndicates
represent the highest level of investment risk because these
projects do not as yet have a bankable firm commitment for the
construction mortgage financing loan required to complete all
activities associated with the acquisition, development and
construction of all project assets set forth in the sponsor's
business plan. There are limitations on uses of the
syndicate's funds prior to closing on the construction loan.
These projects have, as a general rule, a 3-year holding period in
which the sponsor is projecting a gross return to the investors of
150% to 300%.
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Construction
Phase Syndicates. In general, these kinds of syndicates
represent slightly less risk than Pre-Construction Phase Syndicates
because the sponsor already has a bankable firm commitment for the
required construction financing and the syndicate is being formed to
plug the equity gap (the difference between the total project
capital expense budget and the amount of the construction mortgage
loan and any other funding sources). The expected return is in
the range of 150% to 250% for a holding period of no more than three
(3) years.
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Post-Construction
Phase Syndicates. In general, these kinds of syndicates would
represent the least amount of risk and therefore require an extended
holding period (7 to 10 years) in order to create a 250% gross
return (or more) for the syndicate investors pursuant to a business
plan proposal made by the syndicate sponsor prior to the closing of
escrow.
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(Continued)...
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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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