REAL 5070S

Test 2

What are the four risks that shape the financing structure?

Cost, Completion, Market, Takeout

What is the Financing Structure of Cost?

if construction exceed the budget

What is the Financing Structure of Completion?

if it will be completed on time and how it was planned , this can include permits and contractor performance

What is the Financing Structure of Market ?

if demand support rent, sales and absorption

What is the Financing Structure of Takeout?

if construction loan will be paid off in full and on time

What is the Capital Stack?

Common Equity
Preferred Equity
Mezzanine Debt
Senior Debt

Common Equity- Most risky

paid last, most upside and first loss position

Preferred Equity

priority over common equity and negotiated return

Mezzanine Debt

subordinate to senior debt and high required return so high interest rate

Senior Debt- Least risky

paid first, collateral and covenants , limited upside, once you are paid you are out of it

Who is paid first in the Capital Stack?

senior debt

Who absorbs the first economic loss?

common equity

who recieves fixed payments vs residual payments?

senior debt

who makes decisions and who has protective rights?

common equity or senior

What are construction loans?

debt is advanced via a series of “draws” , each one intended to finance the next phase of the project, this can reduce risk to lender. Developer receives the draw and completes phase, applies for next one, and lender inspects and approves

Feasibility Underwriting Question

do budget, rents and completed value make sense

Team Underwriting Question

can developer and contractor complete the plan

Equity Underwriting Question

how much capital is at risk ahead of the lender

Completion Underwriting Question

what would stop or delay the project

Repayment Underwriting Question

what is the credible sale or refinancing path

Before issue a permanent loan, lenders commonly require?

a certificate of occupancy and evidence that the property is stabilized

Within the capital stack, which source of capital is typically paid first and has the most protection against losses?

Senio Debt

Which zoning regulation constraints developers the most when trying to design their projects?

Lot Coverage

How do you find the maximum allowable floorspace?

SF of Lot x FAR

If a permanent leader determines the maximum loan amount using both an LTC constraint and a DSCR constraint, the actual loan amount will generally be ?

the smaller/ minimum of the two amounts