Shopping Center Construction Financing - Continued...

The structured finance approach to creating the condition precedents for negotiating a non-recourse construction financing for a commercial shopping center focuses on the following elements:

1. Developer Seed Capital.  Instead of providing all of the equity (and the developer can if the developer still desires) this structured funding approach focuses on the developer providing only the seed capital necessary to complete the design, construction, engineering, site control and due diligence documentation - an amount in the range of $300,000 to $500,000 on larger scale projects.  These funds are subject to withdrawal (under certain circumstances) if sufficient at-risk equity capital contributions are found from the other sources (see below).

2. Condominium Investment Plan Syndication Equity Capital.  These are not condominium plans created as a means of providing housing for dwellers.  This is a plan that is specifically designed to provide capital financing at the terminal end of the construction period.  This results in lowering the loan-to-cost ratio of the construction loan.

3. Fractional Tenants-In-Common (TIC) Plan Syndication Equity Capital.  The TIC plan is the developer's best friend in terms of equity capitalization because there are fewer limitations placed on the sales proceeds.  This means the capital may be put to work as early as the project's pre-construction phase - and that makes the fractional TIC syndication even more interesting.  In point of fact, a "layered marketing plan approach" may in fact allow the developer to withdraw the developer's seed capital as early as the commencement of construction.

4. Entitlement Financing.  Tax credits (including New Markets Tax Credits and Bonus Depreciation Expense Allowance Deductions) and other statutory entitlements can make a huge difference as the benefits can be traded for and/or used to purchase credit enhancement for the construction loan, provide a means of further reducing the loan-to-cost ratio of the construction loan by trading these tax-advantaged products for cash (or what amounts to the same thing).  The key here is to only rely on those entitlements that are authorized under statute without any substantive qualification or allocation process requirements, as these are - as far as the developer is concerned - a waste of time and money to acquire.

5. Construction Mortgage Financing Loan.  Now that we have all the other elements in play, the negotiations for the construction loan can move forward based upon a change that creates more equity financing for the developer's benefit, while not necessarily limiting the developer's ability to quickly withdraw the developer's seed capital and put it to work on another project.