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REAL ESTATE PROJECT FUNDING CONSULTANTS
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home . about . overview . debt financing . private equity . securities . contact us
REAL ESTATE PROJECT FUNDING CONSULTANTS |
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Commercial Debt Financing
Our investment firm is a registered US Private Capital Investment Corporation operating at an institutional level (QIB) and presently raising capital for qualified projects by leveraging their owned and highly rated investment grade assets (CMBS) to fund the construction of large US real estate development projects.
In order to understand the underlying mechanics of the structure and procedures involved in the process from which our investment firm provides capital to real estate developers by investing in their projects in the form of debt financing, you or your attorney must be extremely familiar with the array of private banking resources and products available to qualified institutional clients who have securities based relationships with any major financial institution in North America.
Without direct experience or knowledge of what can be accomplished utilizing the resources afforded to not only high net worth individuals, but to a greater degree, institutional level corporations operating in the wholesale market, as our private investment firm does, you may misinterpret our offer. If that is the case, we suggest that you consult with a licensed and certified financial advisor or securities broker who is employed by a major financial institution or brokerage firm to gain the market and product knowledge necessary to properly utilize our compliant private capital investment firm to fund your project.
For the last ten years, through contractual relationships with brand name financial institutions, law firms and brokerage houses, our private investment firm has been providing real estate development project ownership with the opportunity to partner with a corporation that owns the specific assets necessary to secure project funding.
They are currently offering, to each qualified developer, a first secured interest position** in an individually formed, project dedicated Limited Liability Company (LLC), which is utilized in the transaction to house the specific amount of assets needed to generate the necessary capital to fund the project. Once the project capital is raised, it is disbursed by the LLC and distributed to the project to finance the hard and soft construction costs according to an approved draw schedule.
The invested capital will be paid back to the investment firm by the developer according to a repayment agreement (outlined in a term sheet). The investment firm will charge a fee to the developer (the developers’ deposit/capital contribution to the LLC) for the use of investment firm assets in the transaction and the placement of them into the project dedicated LLC.
In a nutshell, if your project is underwritten and approved, our private investment firm will pledge and leverage their own assets to raise the necessary amount of capital to fund your construction costs and then invest the raised capital into your project in the form of debt financing.
Utilizing this structure, it is possible for you to finance a majority of the hard and soft construction costs for your project and retain almost all of the equity, providing that the minimum requirements set forth below are met. This financing is entirely project specific with regards to recourse, does not require personal guarantees, and can be used for commercial, residential and mixed use development projects.
The financing covers the construction phase of the project (which can also include the acquisition of a partially completed project and its construction components). Also, it would be advantageous for you to seek out permanent financing once the project is stabilized and cash flowing in order to take out the construction financing, unless the project allows repayment of the investment before term.
A qualified project is required to be "shovel ready" and have a minimum financing request of $20M USD in hard and soft construction costs. As an example, to secure $50M USD in funding, the corporate borrowing entity will be required to produce the documentation to demonstrate:
(1) A minimum of $1.5M USD (3%) Equity (Equity Contribution) currently invested into the project in the form of: (A) an option or purchase agreement for the land, (B) documented municipal approvals for design, zoning and environmental, (C) completed and approved site engineering, (D) completed and approved architectural plans, (E) recent MAI full project appraisal with feasibility and market studies, and
(2) A minimum of $3.0M USD (6%) Interest Reserve (Liquidity Contribution) in borrowing entity corporate control available in the form of a credit line or easily convertible assets not involved with the project, representing 12 months interest only payments, and standing by to compensate for any future physical and/or financial contingencies that would adversely affect the pro forma project revenue, and
(3) A minimum of $1.5M USD (3%) Deposit (Capital Contribution) in borrowing entity corporate control in the form of a credit line or cash and currently available to be applied as a refundable deposit. The Deposit will be held in a third party (bank) escrow account until utilized by a transaction specific, project dedicated LLC formed between the borrowing entity and our investment firm to facilitate the payment of transaction generated costs and associated fees.
Please note that requests of less than $50M will require the same dollar amount as a deposit. Personal accounts and/or investment portfolios do not qualify. Each submission will be evaluated on a case by case basis and concessions may be arranged for those projects with high profit margins and excellent pro forma cash flows.
For projects over $50M, the corporate borrowing entity will have the ability to re-enter into subsequent rounds of financing by utilizing 3% from the initial $50M in funding proceeds to repeat the process in $50M increments until the amount of approved financing is reached.
After the submitted project documentation is approved and underwritten and a term sheet has been reviewed and executed by the developer, as a prerequisite to the formation of the project dedicated LLC, the investment firm will require that the developer provide evidence of their commitment to the transaction by requesting that their deposit (capital contribution) initially be placed in a neutral, designated third party (bank) escrow account after executing an applicable escrow agreement.
While the deposit is protected in escrow, the investment firms attorneys will form the LLC as follows: (1) the LLC will be constructed, (2) a first secured interest position will be contractually perfected on the LLC for the developer, (3) a dedicated LLC brokerage account at a top tier North American bank or brokerage firm will be opened, and (4) the approved assets will be pledged to the LLC. Please note that the LLC and its assets will be wholly owned by the investment firm.
Also note that before the investment grade assets are transferred to the LLC, they will have already been approved for the purpose of the capital raise to ensure a seamless transaction. Also be advised that the process does not involve the marketing or sale of any of the assets during execution which eliminates any unforeseen market fluctuations that would negatively affect the transaction.
As an additional safety factor, the developers deposit (capital contribution) is contractually guaranteed by the investment firm to be returned in full, along with an interest penalty, in the case of non performance if, for any reason, your project is not funded in a specified 120 day time period.
As a condition of the financing, the investment firm will require a minimum of a 15% non dilutable equity/ownership share in the borrowing entity and a first secured position on all issued and or authorized shares/units of the borrowing entity and/or the funded project, as well as any and all assets of the borrowing entity.
Interest rates for the financing will range between 6% and 8% annually and are due in monthly principal and interest payments. The term ranges between 5 and 10 years. The debt can be paid off without penalty anytime after 36 months. There can be a 12 to 24 month payment moratorium for the construction period if requested and validated, with accrued principal and interest due in the last month of the specified term.
Prophecy, as the underwriting entity and direct contracted agent of the investment firm, is compensated by the investment firm at closing from the first draw of the funding proceeds and does not require a fee agreement with you or your company. If your representative, broker and/or agent submitted your project to us, they will be compensated directly from us, as the investment firm does not allow payment of any external contracts and/or agreements in the transaction from the funding proceeds. All client reps, brokers, agents and any intermediaries will be required to register with us in order to be paid and are limited regarding their compensation.
There are absolutely no "up-front" fees involved with this financing or allowed from reps, brokers, agents or intermediaries. If there were any up front fees previously paid by you to an external rep, broker, agent or intermediary before your project was submitted to us, the amount previously paid will be deducted from their compensation. To review the details of our external compensation regulations, please click on the "broker compensation structure" link at the bottom of the page.
Due diligence will take place on your company, property, project and principals. A history for your deposit (capital contribution) will be required to ensure that the funds have not been acquired by illegal means. The project should show an excellent ten year pro forma cash flow, unless, of course, it is a "sell-through" project which should be accompanied by a validated exit strategy.
** A security interest is a property interest created by agreement or by operation of law over assets to secure the performance of an obligation, usually the payment of a debt. It gives the beneficiary of the security interest certain preferential rights in the disposition of secured assets. Such rights vary according to the type of security interest, but in a first position, a holder of the security interest is entitled to seize, and sell, the asset to discharge the debt that the security interest secures.
Funding Available For
We will look at high end residential and commercial real estate development projects that include: golf courses / casinos / sports centers / themed attraction parks / luxury hotels / resorts / luxury apartments and condos / senior housing / assisted living / offices / medical facilities / industrial complexes / special purpose / energy
We have a preference for Master Planned Community (MPC) and Planned Unit Development (PUD) urban mixed use projects that display a village or small town walk-able format, with historic architectural design and applicable to all age groups in their residential components, that are scheduled to be constructed in New England, the mid-Atlantic and the Midwest. Professional architectural and design/build firms currently planning this type of project for their clients or themselves are encouraged to inquire.
Frequently Asked Questions
Q: What must I do to receive a term sheet from the investment firm?
A: We need all of the following documentation from you to submit for underwriting:
Project Information Form. This is a short questionnaire that requests information on your business and your project
Professionally Prepared Submission Package. Containing all of the "documentation required for submission" listed below
Proof of Capability. As an example, to secure $50M in funding, the borrowing entity must demonstrate:
(1) A minimum of $1.5M USD (3%) Equity (Equity Contribution) currently invested into the project in the form of: (A) an option or purchase agreement for the land, (B) documented municipal approvals for design, zoning and environmental, (C) completed and approved site engineering, (D) completed and approved architectural plans, (E) recent MAI full project appraisal with feasibility and market studies, and
(2) A minimum of $3.0M USD (6%) Interest Reserve (Liquidity Contribution) in borrowing entity corporate control available in the form of a credit line or easily convertible assets not involved with the project, representing 12 months interest only payments and standing by to compensate for any future physical and/or financial contingencies that would adversely affect the pro forma project revenue, and
(3) A minimum of $1.5M USD (3%) Deposit (Capital Contribution) in borrowing entity corporate control in the form of a credit line or cash and currently available to be applied as a refundable deposit. The deposit will be held in a neutral third party (bank) escrow account until utilized by a transaction specific, project dedicated LLC formed between the borrowing entity and our investment firm to facilitate the payment of transaction generated costs and associated fees. Please note that requests of less than $50M will require the same dollar amount as a deposit.
Only upon our receipt of a completed package will we accept your documentation into our underwriting process. Providing your project meets the required investment criteria, your package is approved and then submitted to the investment firm. Upon final review, a term sheet specifying the terms and conditions of the financing is issued by the investment firm.
Q: What is the sequence of events that occur from submission to funding?
A: The following protocol must be followed sequentially in order to expedite the funding process:
STEP ONE: If necessary, the borrowing entity may request a mutual non disclosure agreement to provide security for the proprietary business information that may be contained in their business plan. If so, please provide the name and contact information of the borrowing entity signatory (phone and email) along with the borrowing entity corporate name and business address, and we will email the document immediately for review and execution. We will also email you a project information form to fill out and add to your documentation package in step two
STEP TWO: We require that all clients submit the project information form, a professionally prepared submission package containing all of the "documentation required for submission" on the list below and proof of capability. Providing that the client and project meet the required criteria, we will submit these documents to our underwriting process for review and approval
STEP THREE: Approved and underwritten package is sent to investment firm
STEP FOUR: Term sheet and escrow agreement are sent from investment firm to developer for review and acceptance. Developer approves and executes term sheet and escrow agreement
STEP FIVE: Developers' deposit (capital contribution) is placed in escrow account where it sits contractually protected for approximately two to three weeks while LLC is formed by investment firm
STEP SIX: Project specific Limited Liability Company (LLC) is formed to house the assets utilized to facilitate the capital raise. LLC operating agreement and contracts are structured by investment firm attorneys. First secured interest position is perfected on the LLC for developer. LLC opens a dedicated institutional brokerage account. Assets are pledged to LLC by investment firm. Contracts are executed and capital contribution is transferred from escrow
STEP SEVEN: Assets are titled to LLC and then placed into LLC brokerage account. Assets are leveraged to provide full backing for the financing request and subsequently structured by LLC to fully collateralize the capital raise. LLC receives funds from capital raise then allocates and distributes funds to developers account
STEP EIGHT: Project is scheduled and contracted to be funded in 90 to 120 days. As project is funded, the capital is distributed by LLC according to the submitted and agreed upon project draw schedule
STEP EIGHT ALTERNATE: If funding does not occur in 120 days, capital contribution is returned to developer (paid by the investment firm)
Q: How will the deposit be utilized in the transaction?
A: The developers deposit (capital contribution) is defined as the amount that the investment firm charges to the developer for the use of their owned, investment grade assets which are pledged to the project and placed into the LLC brokerage account to be utilized as collateral for the capital raise. It will be split and applied as two separate parts as follows;
Part One (90%) will be in the form of a commitment fee, which will be deposited into a neutral escrow account, as described above, after the term sheet and the escrow agreement have been executed, and is payable after the LLC has been formed and a first secured interest position has been perfected on the LLC for the developer.
Part Two (10%) will be in the form of an administration fee which will be paid to and distributed by the investment firm for escrow, attorney and brokerage account costs incurred in the transaction by the investment firm from the formation of the project dedicated LLC and is payable after the term sheet and the escrow agreement have been executed.
Q: What mechanism protects the deposit during the transaction?
A: To protect the developers deposit (capital contribution), the investment firm contractually guarantees, in the term sheet and the escrow agreement, that if for any reason the project is not funded in the specified 120 day time period, the commitment fee will be fully refunded along with an additional interest penalty of as a "break up" fee paid by the investment firm. Please note that the investment firm has not had to utilize its refund policy for any reason, for any transaction, since its inception.
The deposit is placed into a neutral escrow account, governed by the executed escrow agreement and subsequently placed into the LLC's brokerage account (on which the developer has a first secured interest position) and when the deposit is exchanged for the assets in the LLC brokerage account, the developer, through his lien position, has control over the account with a market value greater than the deposit.
If the above scenario is not risk mitigated enough, at the developers’ request, the investment firm will offer the option to place the assets into the LLC brokerage account BEFORE the funds move from the escrow account for added security, which will increase the total fee for use of the investment firms’ assets. The choice is yours. For this exact reason, we will not entertain potential developers who complain about their own "exposure" in the deal when they are literally depositing only 3% per $50M of project funding (97% LTC) into a 100% risk mitigated transaction as a fully refundable deposit (capital contribution) to an LLC that the investment firm formed individually and specifically for their project and on which the developer holds a first secured lien position and wherein the investment firm placed their own assets to raise the capital that will be invested into a project that may or may not be successful.
We hope this concept is understood and the message is clear. For additional information regarding our underwriting assessment of the risks involved in the financing of large scale projects, please click on the "risk assessment" link at the bottom of this page.
Q: How many projects has the investment firm successfully funded?
A: After forming an excellent business and personal relationship with the principals of the investment firm in late 2010, Prophecy contracted with the investment firm as a direct agent and underwriting entity in early 2011. Before that time, the investment firm had successfully funded a telecommunications project in Florida ($500M) and several real estate development projects ($250M) between 2003 and 2010.
As a result of collaborative product development and extensive marketing efforts in 2011, from 125 applicants, 5 qualified and experienced developers were accepted, submitted their documentation, completed the underwriting process, were fully approved and contracted, the investment firm assets were leveraged, the capital was raised and the projects are currently scheduled to receive their initial disbursements, which include:
1) Mixed use master planned community in Ohio ($400M),
2) Municipal waste to energy project in California with 5 locations ($300M)
3) Coal reclamation project in Kentucky ($60M)
4) Historically themed attraction project in Tennessee ($10M)
5) Telecommunication technology project in Indiana ($40M)
Presently, there are six other experienced developers who have submitted their documentation, have been preliminarily accepted and are working with us toward the completion of the underwriting process in early 2012, which include:
1) Municipal waste to energy project in Illinois ($225M)
2) Biomass waste to energy project in Alabama ($200M)
3) Senior housing and assisted living facility in Illinois ($125M)
4) Mixed use themed master planned community in Mississippi ($750M)
5) Residential master planned community in New Jersey ($100M)
6) Senior housing and assisted living facility in New Jersey ($35M) 7) Multi-sport training and tournament complex in New Jersey ($350M)
Q: Are any of your past or present clients available as references?
A: Every funded project involves a "private" transaction between a "private" client and our "private" investment firm. The key word here is "private" and it is the intent of the entities involved to keep it that way. Upon underwriting approval, each of our clients is required to execute a strict mutual non-disclosure agreement to safeguard theirs and our investment firms’ private business and personal information.
For obvious reasons, this agreement does not allow us to utilize our past and/or current clients, attorneys, institutions, corporations, companies and/or individuals as references for any incoming or potential clients as it violates US disclosure laws and our own privacy policies. We employ the same disclosure policies that are in effect at all of the major brokerage firms, banks and law offices in the US, so please don't waste time asking for references as confidentiality will not be broken under any circumstances.
We have purposely and painstakingly taken all of the precautions and safety measures necessary to provide a risk mitigated transaction and it is very obvious that our clients safety and the integrity of their capital contribution is paramount at all times during the process. If you are not comfortable enough to move forward on your own to submit your project accordingly, utilizing the process described above without references, we will be unable to assist you.
Your attorneys will be directly in contact with the investment firms attorneys when they form the LLC and perfect the first secured interest position on the LLC at the conclusion of step five above, while your capital contribution is safely and temporarily placed in a neutral (bank) escrow account regulated under an escrow agreement which was previously reviewed, accepted and executed by you and your attorney. With a first secured interest position on the LLC in place, you and your attorney are in control of your capital contribution and the transaction throughout the process which eliminates the need for any due diligence in advance of the process commencing.
Documentation Required for Submission
Your professionally prepared Submission Package will include all of the following:
1.) Executive summary with detailed description of project
2.) Pro-forma income/expense data, forward 10 years minimum**
3.) Complete development/construction costs data with breakdowns**
4.) Detailed sources and use of funds breakdown**
5.) Detailed draw schedule during construction as a part of pro-forma data**
6.) Comprehensive exit strategy (build/hold or build/sell)
7.) Biographies on Development Company Principals
8.) Resume and contact info on Development Company
9.) Resume and contact info on General Contractor
10.) Resume and contact info on Architect/Land Planner/Designer
11.) Architectural conceptual renderings including building elevations
12.) Site plan including expanded views of roads and utilities details
13.) Purchase option agreement or sales contract for land acquisition
14.) Approvals for design, zoning and environmental from municipality
15.) Recent MAI full project appraisal with comprehensive feasibility and market studies
16.) Proof of Capability as described above
ALL DOCUMENTS MUST BE INITIALLY EMAILED IN ADOBE PDF FORMAT ONLY.
**Upon initial review, we may request all financial pro forma data to be sent in open excel format for underwriting purposes. Documents that are degraded as a result of being previously faxed are not acceptable even if sent in a PDF. All docs must be in pristine and original condition when submitted.
Please note: only when ALL of the above documentation requirements are submitted, received, reviewed, accepted and underwritten by Prophecy, is your package submitted to the investment firm. Upon final approval, a term sheet is issued by the investment firm for your review and acceptance. Your project package submission will not move forward until it is 100% complete.
A conference call will not be addressed until a completed package has been received and accepted. All potential clients must document their experience, professionalism and capability in advance of their introduction to an underwriting principal. There will be no exceptions.
Primary Objectives
Our investment firm is constantly seeking to invest funds in new projects. All project types will be considered that yield job creation in the US, add liquidity in the US economy and/or solve problems such as clean water, alternative energy, build "Green" etc. We seek projects we can feel good about funding, developers with whom we can feel confident working with and solid projects that contain long term profitability.
Requirements
Project owners are required to have at least 3% "skin-in-the-game" available as demonstrated equity. Any project owner that can demonstrate equity is considered more qualified and committed to their project than one that can't. Regardless of the amount of existing owner equity in the project to date, the investment firm will still look for the 6% interest reserve requirement along with the required deposit amount (capital contribution) from the project owner to be available to facilitate the transaction.
Procedures Submit all of the above documentation and once qualified, a term sheet and escrow agreement will be issued by the investment firm with structure, terms and conditions within two to three days. The developer will then be placed in front of a principal and if the requirements are met based on the term sheet, the contracts will be executed, the deposit will be escrowed and the funding typically starts in 90 days.
NOTICE: Due to the proprietary and sensitive nature of information regarding our private corporate investment firm, we provide limited information on our project financing via web and mass distribution. All sensitive information is reserved for clients who have viable projects and have demonstrated genuine interest and the financial capability to pursue the funding initiative. The firms’ principals prefer to speak directly to the project principals regarding specific financing information only after they have established interest in the project and fully approved them to move forward.
Latest revisions performed on 01/24/12
Subject to change without notice
All rights reserved, 2007-2012
Prophecy Financial Group LLC, PO Box 381, Newtown, Connecticut 06470
This document is for informational purposes only and is not a solicitation for the purchase or sale of any securities, nor a solicitation of investment funds or placement. This document does not represent the policies of any bank or financial institution, is not intended as a confirmation of any transaction, and does not consist of any legal, securities or tax related advice.
risk assessment and underwriting methods
broker network compensation structure
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