If you have a two phase development project that don't overlap (Phase I doesn't start cash flowing until after you've put all your equity into Phase II) what are some creative ways to recirculate equity to reduce your equity contribution?
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Bananas1987, shame nobody has responded. Maybe one of these topics will help:
Fingers crossed that one of those helps you.
Are you the developer? If the LP, I don't think this is a game you can really play. Being that your contribution % is such a large part of the cake...cutting a percent wouldn't really bode well for the project or relationship. If the GP, do you own the land for both phases? One thought is you could somehow structure your equity contribution in the form of an intangible land contribution to the project. Another is the treatment of your developer fee. Lot of times the payout for the developer fee is broken into phases. X% at closing, monthly throughout the HC period, then a percent at CO. You could perhaps defer all or a portion of your development fee on Phase II and use that as your equity contribution. All depends on if the investor will allow such a structure. But I've seen it done on a few deals. If you're doing the typical 5-10% contribution...the development fee strategy alone could cut your cash contribution by 50% in some cases...
Thank you! Yes we are the developer and we own the land for both phases. The land contribution and developer fee ideas are certainly interesting and outside the box, I wonder how well it will go over as we are raising a fund and the way we get paid is through fees and promotes. I guess if we really are looking to minimize equity creative solutions such as these will need to be implemented. Thanks again
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