The Basel III accord changed the rules on commercial real estate development financing and that places even more pressure on the developer to create a credible business plan for soliciting bank construction mortgage loans and the required equity financing as a result. Credible commercial real estate development financing business plans are successful when there is third-party evidence that backs the claims made in the business plan. Every business plan has to pass two tests: (1) will the market create an opportunity that supports the projected economic outcome? and (2) can the promoter pull it off and manage risk? If the answer to either of these issues is only a maybe, then the bank financing is out of the question. Without a strong risk management documentation set credibility regarding potential risk management is left to chance, and that spells doom for the business plan and the financing request.
The must-haves of a successful business plan include:
- Strong evidence of market opportunity – this has to be in the form of a full, complete and tested project feasibility study and the resulting project design has to be predicated on the findings of the market feasibility study (i.e.: the project feasibility study cannot be done after the project is designed unless the project is a site adapt that is part of a roll-out).
- Full pro forma financial presentation – you have to provide – at a minimum – the income statement, balance sheet statement and the sources & uses statement. The pro forma financial presentation has to be in GAAP format.
- Comprehensive risk management presentation – your business plan must be backed by a complete set of component risk management documentation that includes the ERM Plan, the regulatory management plan, the employee risk management plan, and the business plan of operations that takes operations down to the employee class level. If you don’t have these elements cited in your business plan you are likely to be rejected.
Rainmaker Analytics offers a whole new approach to the risk management issues and the credibility issues all in one professional package (see an example – INVIZEN IT RTB Business Plan Sample) that:
- Provides the funding institution with third-party documentary evidence the proposal has already been reviewed and assessed in terms of underwriting requirements that exceed current capital market expectations; and
- Provides the much needed third-party credibility because the management of execution risk (i.e.: “can the promoter pull it off?”) is fully demonstrated in the business plan; and
- Provides strong comfort the proposed investment meets the institutional investment standard of a “safe and sound institutional investment” due to the fact the underwriting standards are intentionally designed to support the INVIZEN IT RTS Program requirements for loan loss prevention and asset performance assurance for the full term of the investment on a real-time, proactive basis that no other company can offer.
Find out why the INVIZEN IT approach is a quantum leap over the historical approach to the business planning approach that has resulted in more than 4 out of 5 companies seeking capital having rejection and failure as the only result. The INVIZEN IT program is intended to support projects having a total offering budget of at least $7.5 million and we support almost all major asset classes. Contact us today at 832.663.9634 to get more information on what we can do that increases the odds of a successful funding outcome.
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