Fractional Dutch Auctions of Commercial Income-Producing Real Estate Properties - TIC Plan Ownership Syndications

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Glossary

Construction Phase Syndicates

A Construction Phase Syndicate consists of a to-be-built commercial income-producing property development program where:

  • the Sponsor of the proposed Syndicate has completed all required due diligence documents, submitted them to the Syndicator and received approvals for all documents from the Syndicator; and

  • the Sponsor of the proposed Syndicate has legal control over the proposed Project site where the development will take place; and

  • the Sponsor of the proposed Syndicate has a bankable firm loan commitment for the proposed construction mortgage financing loan and any other verifiable capital funding that may be part of the development program's capital financing requirements; and

  • the Sponsor has entered into a real estate purchase and sale agreement with the Syndicator that allows for the simultaneous closing and exchanging of Syndicate investor proceeds in exchanged for fractional tenants-in-common ownership interests in the proposed Project wherein the total amount of units being offered is based upon the sum of the total development costs plus the costs of sales for the Syndicate, plus the pre-computed profit the Construction Phase Syndicate investors are entitled to receive (per the "Schedule of Project Economic Key Milestone Goals").

A Construction Phase Syndicate's is less risky (relatively speaking) because the sum of the development costs have been quantified and all other required capital financing has been approved and is pending close of escrow with the Construction Phase Syndicate's net contributions.  The "unknown" associated with the construction mortgage financing loan commitment (that is missing in a Pre-Construction Phase Syndicate) is eliminated in the Construction Phase Syndicate.

That is not to say there are no risks involved.  The key risks that may impact the proposed Project include:

  • Construction completion risk.

  • Construction over-budget risk.

  • Market acceptance risk.

  • Future competition risk.

  • Employee claims risk.

  • Third-party claims risk.

  • Operations budgeting risk.

Any of these risks could become destructive enough to force a given income-producing property development program right out of business - thus exposing investors to a potential loss of investment over which the investor has no control.

But the Construction Phase Syndicate's is not without rewards.  We'll look at a fictitious sample...

The Acme Development Company is the Sponsor of a Construction Phase Syndicate for a retirement living facility known as "Sunny Day Retirement Center".  The cost of land and construction come to a total of $12,520,460.  Acme Development Company has obtained a bankable firm commitment for the construction mortgage financing loan in the amount of $10,360,000 and expects points and carrying costs will add an additional $971,827 to the tab for $13,532,247.  This leaves an equity gap of $3,172,247 that is divided by the Syndicator sales profit spread of 0.92 for a total of $3,448,095.  $3,448,095 rounded down to the next $25,000 creates a total syndication of $3,425,000 (137 units) and an additional capital contribution requirement for the Sponsor of $23,095.

The Acme Development Company projects there to be an 8-month construction period and a 10-month initial lease-up period to stabilization.  All-in-all, the projected holding period is 18 months (or 1.5 years).  The operating income (or "EBITDA" - Earnings Before Interest, Taxes, Depreciation & Amortization Expense) upon reaching stabilization (maximum operating capacity) is expected to be $1,553,411.  This would be converted into a gross enterprise value of $16,351,691.  After the loan is paid off and the other costs are paid off, the share of the net proceeds to the Syndicate are estimated to be $5,205,517 (in the aggregate), and this would result in a per unit ($25,000.00 per unit) yield of $37,996 for a 1.5 year holding period for an annualized cash-on-cash return of 101.32% per annum.

Now that you have an idea of what is going on it is time you registered and started poking around.

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