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Syndications come in all shapes
and sizes. The industry doesn't offer a standardized approach to financing
the ownership of commercial income-producing real estate properties. This
makes investment analyses, in some cases, more difficult to undertake than need
asks. Rainmaker's approach is to create a market response based upon
opportunities that are unique to the Rainmaker platform.
Each new project Dutch Auction
offers purchasers the opportunity to dramatically increase financial investment
leverage by participating in two (2) distinct phases of a given commercial real
estate project's development and financing cycle.
Consider the following
illustration...
Big Hotel Deals, Inc. is seeking
to develop a 105-room, $10,000,000 (USD) hotel project in Anytown, USA.
The sponsors of Big Hotel Deals, Inc. have completed their due diligence but
have not as yet garnered a construction loan commitment for their project.
This means that Big Hotel Deals, Inc. must have their syndication undertaken as
a pre-construction phase syndication or they have to wait until they get the
construction loan commitment before Rainmaker will accept the syndication at the
construction phase financing level.
Big Hotel Deals, Inc. decides to
go forward with a pre-construction phase financing. The minimum amount of
the syndication is $2,500,000. Rainmaker steps into the transaction
paradigm and becomes the purchaser of the project via a tenants-in-common
syndication plan. Rainmaker reviews all the due
diligence reports required for a pre-construction phase syndication and
finds everything appears as it should. The project is now ready for a
pre-construction syndication.
The syndication is listed for 90
days. At the end of 90 days, there are a total of 120 units sold - or
$3,000,000 in gross sales proceeds. The syndication is a success and Big
Hotel Deals, Inc. must close with Rainmaker Marketing Corporation. The
transaction closes and then...
An automatic "trigger"
creates a new tenants-in-common plan for the project via a post-construction
phase syndication equal to the total development cost - $10,000,000, plus the
minimum threshold profit for the pre-construction phase investors - which is
assumed to be 150% of basis; or, 150% of $3,000,000: a total of $4,500,000,
leaving a total of $1,500,000 that must be added to the total development cost,
bringing the post-construction syndication to $11,500,000.
The resulting syndication is
listed for 460 $25,000 units. A total of 120 units have already been sold
to the investors at the pre-construction phase and these investors have the
choice of staying in the deal or selling their pre-construction holdings and
taking the profits (profits only!) and purchasing units in the resulting
post-construction phase finance syndicate.
What are the outcomes?
John Q. Public purchased a unit in
the original pre-construction phase syndication. When the
post-construction (not pre-construction) syndication closes, the rules work as
follows regarding the priority of funding:
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First, to the extent funds are
available, the mortgage is reduced by net sale proceeds until the net sales
proceeds are exhausted or the mortgage is retired in full; then
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Next, to the extent funds are
available, the funding of certain reserves for the benefit of the project
until the funds are exhausted or all reserve accounts are funded to a
current basis; then
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Next, to the extent funds are
available, the retirement of the 120 units of pre-construction phase
syndication proceeds at the 150% level (or, $37,500 per unit) until the 120
units are retired or there are no funds left to pay off the units.
This means the investors can play
the resulting syndication both in the near-term holding window and long-term
holding window using:
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First, the investor's own
funds for the first syndication; and
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Then, the investor uses the
profit to purchase units in the post-construction phase syndication.
This means the investor has retired their investment basis and is now only
risking future profit.
Pretty good deal.
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