JUNE 2010 | www.opp.org.uk


Developer profi le


BUSINESS Finance guide | 57


I would suggest that you carve your project into small, meaningful “bites” or segments.


Often a lender likes to see other lenders committed to a project. This can be done by segmenting different types of fi nancing for different components within the project. If you do this an infrastructure


loan can be organized to develop the property.


Also, putting together the land and infrastructure with entitlements will upgrade the value of the land many


“Often a lender likes to see other lenders committed to a project. This can be done by segmenting within the project.”


times for your asset column. Remember that infrastructure has


different meanings with different lenders, but usually includes roads, potable water distribution and treatment, irrigation water distribution, sewage collection and treatment facilities, power and communications. Sometimes a lender will include commonly used facilities that enhance value in the infrastructure loan. Golf courses, tennis facilities, marinas, offi ces, landscaping and public buildings are also often acceptable.


Established ways to raise fi nance Superstructure – that is to say the vertical construction – can be fi nanced as a one-off project separately from the infrastructure and land. Residential construction (including houses, condominiums, and Fractionals), hotels, commercial buildings, and service buildings can all be fi nanced in various methods. So, consider the many established ways to raise fi nancing ... either via debt


or equity - and decrease risk. You can develop your own list and criteria, but a few interesting methodologies of the list of 25 that Panorama has developed over the years include:


• The use of fi nancial guarantees. Although increasingly diffi cult to obtain, fi nancial guarantees reduce both the perception and reality of risk to a traditional lender and reduce interest rates. They also are costly – and the interest savings are often gobbled up by the cost of the guarantee. The bonus? Your development gets a development loan.


• The use of multilateral loans combined with private capital. A unique structure devised by Panorama experts allows a higher L/V loan at lower risk for all concerned.


• Fractioning – a concept developed by the late (and great) William Zeckendorf - is ideal for resort and resort/residential development. Fractioning calls for the fi nancing of the component of a building, rather than the whole structure.


And never forget, risk reduction is


essential. Think through the loan request as if you were the lender. Undertaking risk has shortened many a fi nancial shelf life, as the unexpected usually happens. So, how can you reduce risk by using


third party validation source? Look at things like pre-sales fi gures; the use of established names and brands; the use of contractors and suppliers who are established and successful; various forms of insurance; and how much use is being made of modern estimating and plan confl ict resolution software (eliminating change orders).


Also think about “Superior Packaging


to Increase Placement Potential.” Lenders want to see a concise presentation in an easy read. This needs


to be followed with a completely detailed report on each of the key issues of the proposed or existing development. All elements should be prepared by a third party consultant. And although there will be a huge amount of detail needed to make up the fi nished product, the presentation should include, at this stage:


• A detailed concept • The preliminary master plan or site plan (not just a land use plan)


• Sports and activities planning • Sustainability reports for environment


and social purposes


• Prototypical preliminary architecture and renderings


• Preliminary engineering • Costing • Pricing • Market studies for each component


• Economic studies and projections – this should be all-inclusive and look at cash sources and supply; income projections; cost projections and budget


• Branding and operator endorsements ... including preliminary agreements


• Business planning including the operational plan so that the development can survive the developer


• Marketing Plan and budget • Financial Plan • The fi nancial offer


Loan Structure and strategy is everything.


Thinking through the demand for capital, the tools used to raise the capital, the best employment of your own assets, and how one blends


different capital sources together to reduce risks, and create profi ts is the mark of a seasoned professional. Think through with your advisors how to employ your capital in order to make the best use of your capital. The methodology and strategy


of the offer ought to take all of the elements above (and many others) into consideration, but allow equity, quasi equity, primary and secondary lenders, mezzanine lenders, income projections, pre-sales, endorsements and guarantees, and the use of specialty fi nance to be included in the plan to assure that you get fi nancing in each category. Use and package the best third party names and involvement. Use brand names, recognized consultants and time proven experts in the creation of the structure,


Review each element from the


lender’s viewpoint; reduce risk, buffer around disaster, and assume that the lender is interested in primarily protecting his investment and secondarily making a profi t. Use endorsements, reputation, past successes, or associate with people who have had these successes.


Flexibility: Regardless of how well thought out the plan might be, there will always be changes.


The lender/investor will have their own ideas and these should be embraced – if practical. All in all, everything above is simply a few hints at making a successful pre- fi nance effort. The next step is getting together a


successful fi nance plan and putting it into place. This is a large and complex


undertaking, and often left to professionals with the right existing contacts in the fi nancial world. But get your early plans in place now


to make that successful fi rst step towards getting the fi nance base right.


BUSINESS


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