If the development group has a strong track record owning and managing properties but has never tackled new construction before, then the way to defuse concern is to "cast" a construction company that has a successful track record; preferably one that has built your project type (for example, a 50,000SF condo development in Manhattan) numerous times over the last 3 or 4 years.

For residential projects, it's important to note that most lenders will analyze a condominium development as if it were going to be a rental property, imputing comparable rents into the pro-forma, and then arriving at an appraised value based on those rents.

A project that only makes sense based on projected sales may have trouble getting financed or may lean more heavily on the developer's personal guarantees or on cross-collateralization with other cash-flowing properties. When all the pre-development or development consulting work has been completed, and your deal is ready to be "shopped", the development team should be ready to stand up to the scrutiny of both lenders and equity partners.

Another situation that we often encounter is a business owner who is seeking to buy a property, renovate it and then move in his existing business. Typically, one strong motivation is that it will make more sense to own than to rent, and that there will be tax advantages to the business owner. Assuming that the business owner's tax returns, operating history, financial statements, etc. make a strong enough case, the next significant hurdle will be showing lenders that a well-conceived plan has been fleshed out as evidenced by the buyer/business owner having compiled any necessary development rights, permits, tax returns, approved plans, a well-thought out budget and a project timeline that makes sense.

Whether a renovation/repositioning, new construction or an owner-occupied business transaction, "packaging" all the crucial elements carefully and shoring up "The Weakest Link" will lead to a project that will not only gets financed, but will get financed on the best possible terms.

© 2008. Gregg Winter. All Rights Reserved.
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