Resort Property Financial Feasibility Studies - Continued...

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The output of the pro forma financial presentation is "dumped" into the capital funding proposal that will be used to negotiate the construction phase capital financing for the proposed project.  If you are going to be seeking non-recourse construction financing for your project, then you should look to RMC to help you put together the pieces that will make your case and make it decisively.

The resort project financial feasibility study must clearly dictate a path and strategy the developer can employ to attain non-recourse construction financing.  In the current market (a tightening credit market) the odds indeed get longer and the strategy has to include the following elements:

1. Lender's Construction Risk Exposure.  The contracts management program must clearly demonstrate to the lender that the construction risk exposure (i.e.: the risk construction costs will exceed budget and/or lead to an incomplete project that has exhausted its capital financing) is being managed to the lender's benefit.  If your construction program does not insulate the construction lender from cost overruns due to the construction process and/or scheduling delays, you cannot expect the lender to agree to provide a non-recourse loan.

2. Lender's Market Risk Exposure.  The market risk exposure must be shouldered by the developer and the equity capital partners in the transaction.  The developer's plan must clearly demonstrate the market risk exposure (i.e.: the risk the project will fail due to consumers/end-users making other/competing project consumption decisions, leaving the project with insufficient operating income to pay operating expenses and service the permanent mortgage) to loss of investment due to a slow or contracting market or the developer cannot reasonably expect the lender to agree to provide a non-recourse construction and permanent mortgage loan.

3. Lender's Operating Risk Exposure.  The developer's plan must clearly demonstrate a multitude of risk management program elements that will be employed to hedge the lender's exposure to subjective investment risks and moral hazards resulting from ongoing operating risks the lender is not equipped to manage.  The developer's plan must demonstrate how the lender is insulated from risk of loss due to operating events or the lender cannot be expected to provide a non-recourse construction and permanent mortgage loan.

Find out more about how you can manage these risks with a RMC risk management program designed specifically for commercial real estate developments.  Call us and get a Rainmaker for your very own.