-
Construction
Loan. Refers to a loan that is used for construction and/or
interim period financing. Sometimes called an "interim
loan" and is usually the first lien position. The
lender that provides the construction loan usually provides the
permanent loan or mini-perm loan (as the case may be).
-
Construction
Phase Syndicate. Refers to a Syndication formed for the
purposes of providing equity gap financing for a to-be-built
commercial income-producing property development program where the
Sponsor has a bankable firm loan commitment for its required
construction mortgage financing loan (the gap being the difference
between the total development cost less the loan origination
amount, plus the costs of syndication). Construction Phase
Syndicates are slightly less risky than Pre-Construction Phase
Syndicates because (theoretically) all of the costs of the
development program have been quantified and all of the sources of
capital expense financing are accounted for.
-
Core-Based
Statistical Area (CBSA). Term assigned by the United States
Bureau of the Census to metropolitan areas having populations
greater than 50,000 persons (replaces MSA).
-
Cost
Segregation Analysis. The delineation of all real and
personal property into their proper depreciation categories via a
physical survey of a subject property in order to maximize
distributable cash flow from the commercial real estate property
and defer taxable income into a future reporting period. Click
here to view this service selection.
-
Cross-Collateralization.
A common practice in real estate development finance, wherein the
lender for one given property requires the borrower to grant the
lender a mortgage interest in all other properties of the lender.
-
Cross-Default.
A common practice in real estate development finance wherein the
lender for one given property forces the borrower to covenant with
the lender that a default on any provision of any other credit
instrument of the borrower shall constitute a default on the
mortgage or credit instrument provided by the lender.
-
Demand
Analysis. The process by which the analyst determines the
theoretical demand for a given type of housing program for a given
period of time.
-
Demand.
Refers to the number of units or beds or new construction a
marketing area will theoretically support over a given forecast
period. There are three (3) categories of demand: Net
Buildable Demand; Net Demand; and, Gross Demand.
-
Demographics
Analysis. Refers to the process by which the demand for new
construction is quantified using estimates of population, sales,
etc., for a given area for a given period of time.
Design/Build.
Refers to a type of construction delivery method wherein:
-
The
general contractor is responsible for the architectural designs
used in the construction process; and
-
The
general contractor is responsible for the quality of construction,
cost of construction and timely delivery of the constructed
buildings and structures of the project.
The
design/build approach provides a higher level of construction risk
management for a given construction program, but is typically not the
least expensive method of delivering the project because the project
is typically not bid under a design/build contract.
Design/Builder.
Refers to the term assigned to the general contractor in instances
when the design and construction of a commercial real estate
development project is undertaken pursuant to a design/build
construction contract between the general contractor and the owner.
Developer.
In a Syndication, the Developer is the entity that undertakes the
development management (see below) services in exchange for a fee for
the benefit of the Sponsor's Project. The Developer can also be the Sponsor.
Development
Management. Refers to the management of the totality of the
economic opportunity associated with a commercial real estate
income-producing property development program wherein:
-
The
Development Manager is the highest authority and reports directly
to the Owner; and
-
The
Development Manager is responsible for coordinating and
administering:
-
The
project due diligence documentation process; and
-
The
project designs and associated services; and
-
The
project construction program; and
-
The
project property operations program; and
-
The
project capital funding plan.
-
The
Development Manager is paid compensation for providing services at
the pre-construction phase, construction phase and initial
lease-up phase of the project's development schedule. In
return for this compensation, the Development Management Company
provides an onsite project manager to whom all disciplines
associated with the proposed project report.
-
Distribution
Plan. An amendment to an operating agreement (limited
companies) or contract amendment between a Sponsor and a given
Syndicate that denotes the share of cash flows the Sponsor will
receive moving forward and the share of cash flows the Syndicate
will receive moving forward. The Distribution Plan is one of
the most important documents each Syndicate acquires upon
formation.
-
Due
Diligence. The process by which an investment/loan
underwriter verifies the claims of a project's sponsor relative to
a given project or program. This process involves an
independent investigation that can take months to complete if the
data requirements are not fully satisfied at the initial submittal
of the proposed Project. Items of particular note will
include a detailed analysis of the proposed Project's anticipated
market conditions, competitive environment, anticipated financial
results of development and operations, and the Business Plan.
-
Dutch
Auction (modified). An online auction where all bidders may
only bid the listed price for identical ownership interests in a
given syndication. Also known as a "multi-unit English
ascending auction" approach. Dutch Auction seems to be
easier to remember.
-
EBITDAR
- refers to Earnings Before Interest, Taxes, Depreciation,
Amortization and Rent. This is the operating income of a
given program or company. Taxes refer to federal income tax
obligations of the company, not real estate taxes or personal
income taxes of employees. Rent refers to ground rent upon
which an income producing asset is located and not office rent.
When a transaction includes a leasing of usable facilities, Rent
refers to the lease payment.
-
Entry
Fee Senior Housing. Refers to a type of senior housing the
resident can afford by virtue of the payment of a fee (the entry
fee). When the resident moves out, some portion of the entry
fee is returned to the resident when the living unit is released
to the next resident. Entry fee communities tend to offer
the same monthly costs that rental senior housing programs
offer. the difference is in the level of finish, property
amenities and/or additional services the resident's entry fee can
command. This is a very profitable "brand" of
senior housing because it allows residents to access the
"champagne lifestyle on a beer budget" and when the
resident dies, the heirs receive back the entry fee based upon
whatever terms were agreed upon prior to residency.
-
Equity
Gap. Refers to the amount of capital required to close
escrow on a mortgage loan. The equity gap is equal to the
total project budget less any mortgage financing loan proceeds and
less any other capital financing proceeds.
-
Fiduciary.
Refers to the services provided by Real Estate Plays Dot Com, LLC
for the benefit of the Syndicate, the Sponsor and any other
economic stakeholders in a given transaction. These services
include:
-
collection
of all proceeds in the lockbox account; and
-
making
payment of all fees due to Fiduciary; and
-
making
payment of sums owed to the renter of the project's assets (a
separate operating company); and
-
making
payment of sums owed to the Syndicate; and
-
making
payment of sums owed to the Sponsor.
-
Finance
& Carrying Costs. Refers to those costs associated with
the development of a commercial real estate project that is equal
to the sum of all working capital applied, pre-opening working
capital, loan fees, loan points, loan reserves,
legal/organizational expense, interim accounting, syndication
fees, investment banking fees, wrap & guarantee fees and
related expenses.
-
Financial
Feasibility Analysis. The process of analyzing and
determining the prospective cash flows for a given project or
program based upon historical information relating to an entity,
an industry, the market feasibility analysis for the project or
program and the goals and requirements of the Owner's Program.
With respect to real estate development and senior housing, this
usually includes the development of a stabilized operating
analysis to determine the overall operating cash flow potential of
a given project, that in turn, provides the framework for a
capitalization analysis of the project's development needs, which
together with the operating analysis, are then consolidated into a
final integrated financial presentation.
-
Forecast
Period. The time period for which a demographics forecast or
Demand Analysis is provided (usually 5 years).
-
Fractional
Ownership. Refers to a type of real estate ownership known
as "tenants-in-common" (or tenancy-in-common) where all
of the investors own a real property deed (just like the one that
comes when you buy a house) that entitles the investors to a
defined share of the resulting cash flows of the property based
upon their pro-rata ownership. A working example would be a
syndicate of 100 units and you purchase one (1) unit. These
gives you a 1.00% fractional ownership real estate ownership
interest in the real property and improvements thereon. This
is an alternative to a private placement offering of securities
where the investor receives securities (debt securities or equity
securities or hybrids) for their investment; this approach gives
deeded ownership pursuant to some pre-defined business deal the
sponsor (quite often the developer and sponsor are the same entity
- "developer/sponsor") is offering to the purchasers who
sign individual real estate purchase agreements.
-
Global
Escrow Instructions. Refers to specific instructions given
to the Fiduciary by the Sponsor and in observance of certain
contract considerations pertaining to sums of money resulting from
operating activities and/or non-operating activities of a
commercial income-producing property owned by the Syndicate and
operated by the Sponsor (or an affiliate of the Sponsor).
-
GO
Zone. Refers to the "Gulf Opportunity Zone" - a
defined area in the Gulf Coast area that is targeted for special
financial assistance to help with the recovery efforts stemming
from Hurricane Katrina, Hurricane Rita, and Hurricane Wilma
pursuant to HR 4440 (the "Gulf Opportunity Zone Act of
2005" - P.L. 109-135). Businesses located or developed in the GO Zone
qualify for special financing assistance. This assistance
package includes special tax incentives, tax-exempt financing,
and/or availability of CDBG financing
assistance that cannot be accessed anywhere else in the United
States.
-
Gross
Demand. Refers to the pool of cohorts who are income
qualified and market qualified for a given housing program type,
within a given marketing area for a given forecast period.
-
Hard
Cost of Construction. Refers to a term in development and
construction that represents the sum of direct construction costs,
general conditions, overhead, profit, bonding, permitting,
contingency costs and ff&e costs.
-
Income
Qualified. Refers to households that theoretically meet the
minimum income requirements for inclusion in a housing demand pool
based upon certain income and cost assumptions.
-
Internal
Rate of Return (IRR). The internal rate of return is the
interest rate received for an investment consisting of payments
(negative values) and income (positive values) that occur at
regular periods. This is the most common used function in
weighing the potential financial rewards of an investment.
-
Lease-Up
Forecast. Refers to the forecast of demand that is
theoretically achievable based upon estimated and forecasted
changes in market conditions for a given type of housing program,
for a given period (usually monthly or annually).
-
Market
Feasibility Study. The process by which the demand for a
given type of Project proposal is quantified in terms of
underlying support within its projected trade area. This is
usually performed by an independent party (a consultant) to the
developer for presentation to lenders and investors for the Due
Diligence analysis by same.
-
Market
Qualified. Refers to the factors that make-up the
theoretical profile of a population grouping for a specific type
of housing program.
-
Merchant
Building. A business wherein the core function is to develop
and construct new facilities of some type (housing, office space,
etc.), with the express intent of disposing of the asset upon
completion of construction to a third party via a sale or lease.
-
Mini-Perm
Loan. Refers to a construction loan that has an extended
term beyond the proposed construction term, but not for more than
48 months in most cases. This is up to the parties and
preferences of the lenders and developers.
-
Net
Buildable Demand. Refers to the Net Demand that is
penetrable over a given time for a given program type within a
given area after all other theoretical reductions have been
accounted for in an analysis.
-
Net
Demand. Different people describe this term in different
ways (really confusing I think). However, this generally
refers to the demand for a particular type of housing, within a
given marketing area based upon income qualified, market
qualified, cohorts statistically likely to be available for
consideration for the housing program type, after the reduction of
the cohort pool is made to reflect the anticipated gains made by
competing facilities (current, planned and proposed).
-
Non-Recourse.
A term referring to credit instruments or mortgages that do not
require the borrower to personally guarantee repayment and
performance of all of the obligations of the borrower's company
pursuant to the origination of the credit instrument or mortgage.
-
NRSF.
Net Rentable Square Foot (or Feet or Footage). the net
amount of living space in a dwelling or space for the tenants use.
-
Outline
Market Plan. One of the end-products of a Market Feasibility
Analysis. The Outline Market Plan provides the project
developer and/or owner/operator with critical marketing data as to
the types of marketing mediums, basis of competition (marketing
medium content), rate schedules and other related data that is
used to determine the overall financial feasibility of a given
Project proposal.
-
Owner's
Program. Refers to the conceptual document and/or concept
that quantifies the goals and requirements of a given company or
sponsorship entity with respect to the operations, marketing,
financial, architectural, client/customer, regulatory,
construction, development and related activities associated with a
new program or project initiative or diversification of a given
company. The process of developing this document becomes the
"blueprint" by which sophisticated companies create a
corporate culture and communications program that allows the
company to properly address all employees, consultants, service
providers, vendors and interested third parties, while providing a
basis for growth and profitability for the company.
-
Penetration
Rate. Refers to the theoretical number (or percentage) of
cohorts that can be successfully attracted to the proposed
program. The higher the penetration rate required to fill a
given program, the riskier the project becomes.
-
Permanent
Loan. Refers to a fully-amortized mortgage loan that is used
to retire a Construction Loan or Mini-Perm Loan. These loans
have the most aggressive pricing and liberal repayment terms of
any debt capital source (in most cases).
PMA.
See below.
Post-Construction
Phase Syndicate. A Syndicate that is formed for the purposes of
providing capital funding for an existing commercial income-producing
property that does not entail any substantive new construction
activities. In order for any given property to qualify for
listing as a Post-Construction Phase Syndicate, the Sponsor must:
-
have
legal control of the property; and
-
have
completed all due diligence documentation requirements; and
-
have
a bankable permanent mortgage financing loan commitment in hand;
and
-
enter
into a purchase and sale agreement with the Syndicator.
Pre-Construction
Phase Syndicate. A Syndicate that is formed for the purposes of
providing capital to a defined commercial income-producing real
property development. In order for any given project to qualify
for listing as a Pre-Construction Phase Syndicate, the Sponsor must:
-
Primary
Marketing Area. Refers to the geographical area from which a
given project or program is anticipated to capture the highest
degree of penetration based upon a given set of assumptions
(program type, market qualifications, etc.). In practicality
(i.e.: in terms of commercial real estate development based
projects) the PMA works out to be the area from which 75% of the
expected routine revenues from ongoing operations would be
realistically captured.
-
Project.
Refers to a specific commercial real estate development that
includes the purchase of real property and the construction of all
of the assets required (e.g.: buildings, structures, equipment,
infrastructure, etc.) to allow for the operations of the proposed
ongoing business opportunity of the Sponsor.
-
QIB.
Acronym for Qualified Institutional Buyer. (see below)
-
Qualified
Institutional Buyer. An institutional investor having at
least $100 million in liquid capital investment funds available
and holdings of at least $500 million. (think Fortune 500
and you have it)
-
Sale/Leaseback
Financing. A financing arrangement wherein the developer
retains ownership of the proposed project until construction is
completed and operations are able to commence; after which, the
project is sold to an investment group of REIT. The buyer
provides a long-term lease to the developer on terms and
conditions that are agreeable to the parties.
-
Schedule
of Project Economic Key Milestone Goals. A document created
by each Syndicate Sponsor that sets forth the schedule of
compensation (distributable cash returns) that divides all
operating and non-operating cash flows between the Sponsor and the
Syndicate (in the aggregate) for each month of the projected
holding period.
-
Seller.
For the purposes of understanding syndications, the term refers to
Real Estate Plays Dot Com, LLC.
-
Sensitivity
Analysis. The process by which a proposed Project is
analyzed to determine the Project's viability in the face of
changing circumstances beyond the reasonable control of the
Projects developer.
-
Soft
Cost of Construction. Refers to a term used in construction
that equates to the sum of land acquisition costs, architectural
design services, engineering services and the cost of certain
other professional fees and costs associated with creating the
assets for an income-producing commercial real estate property.
-
Sponsor.
With respect to a given Syndication, the Sponsor is the holding
company that owns the real property interest prior to the closing
of escrow for its Syndicate. The Sponsor is the owner of
record prior to the formation of the Syndicate and each Sponsor
enters into a real estate purchase and sale agreement with Real
Estate Plays Dot Com, LLC that becomes the basis for Real Estate
Plays Dot Com, LLC to undertake a given syndication.
-
Staffing
Patterns Analysis. An analysis of a facility in terms of how
its physical characteristics (layout) lends itself to optimized
resident services staffing, the analysis of staffing requirements
in terms of patient acuity needs and the development of new
staffing programs to effectively manage resident care
requirements.
-
Structured
Finance. A term used to describe an organized commercial
financing program that provides a set group of due diligence
requirements, application steps, and preset acceptance standards.
The term is also used to describe the practice group within large
investment banking firms that deals with larger-scale commercial
funding transactions (usually $100 million and over).
-
Subjective
Investment Risks. Risks that, because of their very nature
and uncertainty, cannot be adequately quantified and/or managed
for the benefit of investors, owner/operators, developers and/or
sponsors of commercial income-producing real property
businesses. The key subjective investment risks include:
-
Systemic
Market Failure Risk. The risk that the intended primary market
(i.e.: a given industry group) for the proposed project in fact
experiences a systemic failure placing the investment syndicate's
investment at hazard. The most common presentation of this risk
is to compare what happened to horse carriage manufacturers once the
automobile became widely available. This risk can be managed,
but never eliminated because our economy is based upon market
capitalism where the end-users/consumers of the products/services
choose the winners and losers by virtue of the consumer/end-user's
purchasing preferences.
-
Market
Competition Risk. The risk that competitive pressures will be so
acutely felt within the geographical primary marketing area of the
proposed project that the proposed project cannot reach (or sustain)
the projected maximum operating occupancy foreseen by the market
feasibility report, placing the investment syndicate's investment at
hazard. This risk cannot be eliminated but it can be minimized
as a result of selling out the long-term Post-Construction Phase
Syndication, thus placing the proposed project in the enviable
position of not having any non-operating debt service obligations.
-
Foreclosure
Risk. The risk the proposed project will not generate enough
operating income (EBITDA) to meet its debt service obligations
pertaining to the loans and mortgages outstanding resulting in the
lender filing a lawsuit for foreclosure, resulting in the investment
syndicate's investment at hazard. This risk can be eliminated by
retiring the long-term project mortgage loan, thus eliminating the
basis for a foreclosure.
-
Bankruptcy
Risk. The risk the proposed project will not come off as
proposed and result in a bankruptcy filing in order to protect the
assets of the project. This risk can be eliminated in the same
manner as foreclosure risk; by retiring all outstanding liabilities
that can be legitimately retired including:
-
-
Inventory
Risk. The risk the inventory purchases will not be usable for
their intended purpose because the materials are not able to be
utilized in near-term due to damaged or obsolescence resulting in the
investment syndicate's investment in the project being placed at
hazard. This risk can be virtually eliminated through the
program development requirements that focus on the "best business
decision" approach wherein the tool that is perceived to do the
best job (direct use and acquisition cost utility value) for the funds
being invested.
-
Accounts
Receivable Risk. The risk the project will not be able to
sustain the Accounts Receivable costs (in terms of working capital)
resulting in the investment syndicate's funds being placed at
hazard. This risk can be managed by having the syndicate
purchase the entire Accounts Receivable portfolio at the outset.
-
Interest
Rate Risk. The risk the project will become insolvent due to
increasing interest costs (borrowings) compared to those costs of
competing properties within the same primary marketing area, reducing
income and placing the investment syndicate's economic opportunity at
hazard. This risk can be eliminated in the same manner as
bankruptcy risk and foreclosure risk.
-
Asset
Economic Obsolescence Risk. The risk the income-producing assets
of the project become economically obsolete as a result of the
application of labor over time and/or advances in technology that may
be of a nature and scope so as to place the investment syndicate's
investment at hazard. This risk can be managed in much the same
way as the inventory risk.
-
Regulatory
Risk. The risk a governing authority may pass such laws or adopt
practices that impinge upon the project's ability to generate income
resulting in the investment syndicate's investment being placed at
hazard. This risk can be managed but can never be eliminated and
is one of the risks that the investment syndicates will always be
exposed to on an ongoing basis and at all times.
-
Customer
Risk. The risk a customer/client of the project will file a
claim, the sufficiency of which is large enough that, if the claim is
accepted (or prosecuted - the same outcome) the investment syndicate's
investment will be placed at hazard. This risk can only be
managed by separating the ongoing business operations business
opportunity (represented by the sponsor's ongoing operations program)
from the asset rental business opportunity the investment syndicate is
, more or less, primarily concerned with supporting. The
syndication platform's business program focuses on separating these
activities whenever and wherever possible.
-
Third-Party
Claims Risk. The risk a third-party, through use of products and
services, or through use of the project facilities, will create a
claim against the investment syndicate's assets, the sufficiency of
which is large enough to place the investment syndicate's investment
in the assets of the project at hazard and includes moral hazards
arising out of same. This risk is managed in the same manner as
customer risk - entity separation.
-
Employee
Claims Risk. The risk employees of the project will file a claim
and demand satisfaction for said claim, the sufficiency of which (if
proved) would place the investment syndicate's investment at
hazard. This risk is dealt with in the same manner as
third-party claims risk and customer risk.
-
Deferred
Maintenance Risk. The risk the project sponsor fails to
adequately financing a sinking fund established for the purposes of
repairing and/or replacing aging and/or broken capital assets in favor
of some other use of cash flows, the aggregate of which results in the
project being less competitive and the investment syndicate's
investment is placed at hazard as the direct result. This risk
is managed by virtue of the requirement of every project syndication
to provide a pro forma financial presentation that includes the
funding of capital improvement reserves sufficient to allow for the
purchase (including leveraged purchases) of new assets.
-
Distribution
Risk. The risk the project will generate distributable cash
flows, but for the actions of management, these distributable cash
flows would have otherwise been paid out to the investment syndicate
and the sponsor on the basis stipulated in the Schedule of Project
Economic Key Milestone Goals, placing the investment syndicate's
investment at hazard for a loss of earnings. This risk is
eliminated by having the syndication platform make all distributions
on behalf of the investment syndicate participants, the sponsor and
the employees of the project.
