Summary
Drawdown Order of Funds:
- Explanation of how funds are allocated during construction phases, involving debt and equity sources.
- Focus on construction loans and how they transition to permanent loans post-construction.
Debt and Equity Dynamics:
- The roles of developer equity and construction loans, with flexibility to add or remove sources as needed.
- Fixed vs. variable interest rates for loans, and how they are adjusted dynamically.
Operating Shortfalls:
- Definition: When operating income is less than operating expenses.
- Banks may require these shortfalls to be packaged into the construction loan.
Hierarchical Funding Process:
- Debt from different sources (e.g., mezzanine loans) and their respective interest rates.
- Developer’s equity breakdown between general partner (GP) and limited partner (LP).
Dynamic Adjustments:
- Importance of maintaining dynamic financial models to ensure coverage of interest payments and construction costs.
- Processes to save and refresh financial setups.
Insights Based on Numbers
- 100% Equity Allocation: Often, 100% of equity originates from the developer, but the model accommodates customization.
- Debt Breakdown: A typical mix could include 80% from primary loans and 20% from mezzanine funding, emphasizing financial structuring.
- Interest Rate Dynamics: Fixed and variable rates are highlighted, with formulas to calculate them until the end of the project.