Individual has assembled multiple parcels, spent time and $$ getting entitlements for mixed-use project.
His desired plan would be to build it out, refinance, and hold it longer term. Entitled land value (based on residual valuation and sales comps) is roughly $10MM. Total cash basis in the land (which has been assembled over past 12 years) is roughly $5MM. Cost to build out would be roughly $30MM. With some structure, could probably get financing of 75%, thereby allowing for land to be contributed as equity with no further checks being required. However, individual does not have the balance sheet/net worth to sign on construction loan.
Assuming he could partner with a fee developer with a balance sheet who is willing to take care of the construction loan. In a scenario like this, would it be appropriate for the developer to take a piece of the common equity as well, or could they structure simply so they earn a development fee and some form of payment in exchange for signing on the loan? Any recommendations on structure, etc?
There are a few options here:
1.) They could bring in a fee developer as you mentioned. I have not had great experiences with fee developers so this might not be ideal. There are definitely firms out there that would do this for a developer fee and walk away upon stabilization. These are usually smaller or less reputable firms.
2.) They could find an experienced local developer or regional/national developer depending on the site/project and split the GP and promote with this developer. It still allows them to participate in the upside of the development and an established developer could probably attract quality LP partners and give the project some credibility.
3.) They could find a GC that would be willing to sign for any guarantees on the construction loan. There will obviously be a cost associated with this, but this is another viable option.
One thing to point out is even with a strong guarantor, it may be tough to get 75% financing from a bank in the current environment due to the HVCRE regulations (at least 15% of capital stack must be cash equity)
75% construction financing from a commercial bank is non-existent right now. You are in the the mezz world above ~60%. The HVCRE issue is 15% of completed value must be cash equity in the stack but different banks take different views on whether preferred counts in that bucket.
This also depends on geography, asset class and size. How many gross square feet and what is the programming mix?
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