How would you structure this?
A GP builds a building for $10MM with 75% leverage. Assuming its worth $15MM at stabilization and refi'd with 75% leverage, you pull out $3.75MM. Is there a way for the GP to sell more equity or raise more than 2.5MM at the beginning of the project?
What is your objective here?
You can always 60/40 this theoretical building as opposed to 75/25, which would allow you to raise more equity...
Le'ts say the GP owns 2.7MM of land free and clear that they could contribute as equity.
What happens to that extra $200,000 assuming the bank credits the entire value of the land?
If the GP wanted money in their pocket now, and not at refinance when the money comes out, in this scenario, could they raise more than 2.5MM?
Take a loan that is only 72% LTV?
If you can find a bank to lend you 75% ltc when land is 27% of the budget then congratulations, that $200,000 becomes cash in your pocket. Your total budget is still $10mm though and the $200,000 is now a profit, assuming you purchased the land for less than the $2.7mm imputed value.
I get the feeling you're attempting to have us solve your homework assignment.
No. Free money doesn’t exist.
From your comments, I can kinda see where this is going..I hope.
You can get an LP to contribute more than your pro-rata land valuation/cost. If you have appreciation of the land since purchase you can get the LP to come in at X percentage of the overall costs. I mean, hey it could be a fight but if they look to over-preform their return hurdles I don't think they would mind.
I've had an LP contribute a $60mm equity check above what our basis was in the deal.
At what point in the timeline did they write that $60mm check? Hard to believe an LP would just cut you a check for $60mm above your budget before construction had even started. I have seen LPs get recapped at near stabilized value when construction is almost complete and lease-up has started.
Upon JV signature...or a little thereafter.
Well, if you bought the assemblage in 1980, and you mark to market, the delta between the land cost and market was about $60mm, maybe a little less.
So Land Cost 1980 minus Land Value 2019 = ~$60mm
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