Developers seeking commercial real estate (CRE) development financing are facing a whole new set of issues today that demand careful planning. CRE bank financing business plans have to reflect the two big reality 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. This places a special burden on the developer of a CRE income-producing property due to the implementation of the HVCRE rule ushered in by the Basel III international banking accord. The HVCRE rule basically states that high LTV commercial loans will generally require the commercial banking institution to contribute 150% of the previous loan loss reserve requirement and supervised institutions are not going to want to make that move without strong justification. The developer’s previous experience, character, education, credit score and other subjective measurements of potential credit risk exposure cannot be counted upon to carry the day and get an approval. If your proposal for bank financing on a CRE development deal (an ADC financing) has been repeatedly rejected, then execution risk management is likely the culprit that has tripped up your proposal. Without a strong risk management documentation set, you are leaving credibility to chance, and chances are the credit risk will be too great for the bank to accept.
In the end, CRE developers have to face the reality they have a conflict-of-interest regarding the capital financing proposal (i.e.: business plan) and their claims made in the plan are going to be taken with a grain of salt. This means third-party credibility is the only solution that is going to provide the documentation that a given claim or risk is manageable.
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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