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Financing Project
Development
McGraw-Hill/Irwin
Project Development
Finance land acquisition with intent of
developing it and selling it
Development is impacted by the regulatory
environment
16-2
Zoning
If in compliance, then permitted
If not in compliance, then appeals process
City planning department input
16-3
16-4
Exhibit 16-1
Phases of Real Estate Project Development and Risk
16-5
Soft costs
Planning, leasing and management costs
16-10
16-12
Lender Requirements
Loan submission information
Detailed description of development and
market analysis
Lender Requirements
Standby commitments
Binding agreement, but low expectation of
being used
Used when:
Developer does not want to pay fees for a
permanent loan
Expectation of securing a better permanent loan
later
Plans to sell the project and permanent loan is not
needed
16-14
Lender Requirements
Permanent lender common contingencies
Time limit to acquire a construction loan
Completion date for construction
Minimum leasing requirements and approval
of main leases
Gap financing provision
Expiration date
Approval of design and material changes
16-15
Lender Requirements
Construction or Interim Loan
Usually local lenders who
Know the local market
Monitor construction progress
Disburse funds as phases are completed
Mini-perm loan
Monthly draw method
Work is verified by architect or engineer
Lender Requirements
Closing the Interim Loan
Assignment of commitment letter
Create obligation between interim and permanent
lenders
Lender Requirements
Permanent Loan Closing
Lender confirms that contingencies are met
Nonrecourse Clause
Restrict lenders claim in default
Increase emphasis on property quality
Credit enhancements
16-18
Project Costs
Cost per square foot of gross building area
Compare with comparable property
Profitability
Before-Tax Cash Flows and After-Tax
Cash Flows
Net Present Value
Internal Rate of Return
Sensitivity Analysis
Feasibility Analysis
16-20