my firm is about to begin construction on an expansion/phase II of an existing retail center. hopefully people will still be shopping in 16 months by the time it's built, but that's for another thread.
anyway, the financing will come mostly from a credit line against the equity in the first, existing phase of the center. so 100% existing equity we pay a relatively cheap floating rate on, about LIBOR + 100. let's say it's about $10m altogether.
my question is, would it be a better use of capital to instead use only $3m of the credit line as a cash contribution/"equity", and then use a construction loan of $7m for the rest? the rate in this case may be higher, but at least we aren't "spending" so much of the equity in the existing center and perhaps that money could go towards other things.
how would you finance the deal? thanks!
bump
70% LTC financing for phase II? You have a lot of pre-leasing commitment? Does phase I cash flow?
I suspect you may end up having to pledge equity in phase I anyways given the leverage and environment.
True. Do you often see developments financed with credit lines instead of traditional construction loans though? I suppose it doesn't make a difference if we can secure perm debt on phase II after stabilization/completion (separate entity/parcel)...
How long do you get this line for? We generally pay more fees on top of the rate if we are going to use it for more than 6 mos. If you can keep your interest costs low at the beginning, this will help your IRR.
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