Commercial Real Estate (CRE) financing for Acquisition, Development & Construction (ADC) projects is among the toughest business capital finance transactions to successfully navigate. The SBA tells us more than 4 out of 5 entrepreneurs seeking capital fail to get it. That’s a lot of project opportunities and money getting flushed down the toilet. Access to liquidity is an issue that obviously hurts our economic growth potential and its resolution would unlock potential growth that may defy quantification, much less impact.
CRE properties represent fungible units of credit and the owners of these properties and portfolios of properties have vast amounts of equity (tens of trillions of dollars) that lay largely untapped, yet they are still there and have the potential to unlock the ADC financing lock.
The emerging trend that supports the use of the equity credit is a collateralization of the ownership interests in a flexible pool funding structure to cover calls on failures and providing the most important portion of the liquidity pie – equity capital for at-risk investment. This provides the portfolio owner with yet another level of economic return opportunity that was not previously contemplated and the developer/sponsor with the capital to move a project from pre-construction into active construction phase development.
This opportunity requires an organized market that includes the primary origination platform that functions in a real-time setting, as well as a secondary market for the transference of credits en-mass and replenishment of the primary risk pool operations capital resources. This work is already largely done and functioning so there is definitely a case to be made for developers and sponsors seeking financing to avoid that horrifying 4 out 5 failure statistic while also serving the needs for organized and efficient markets.
Sounds like a potential win-win to me.