Exotic Financing Made Simple: The Bond

Bond financing is considered one of the more exotic forms of funding a commercial real estate project. While bonds are certainly not a new form of financing, they are not well understood by the majority of developers. Bonds offer many advantages over conventional commercial loans.

1. Bonds offer higher leverage for developers – 80% or more of loan to total cost may be financed: Hard costs, soft costs, operating costs from early stage development through entitlements, permits, all the way through project stabilization (which may be 3 years) and developer fees (depending on net operating income) may all be financed through a bond.

2. Non-recourse - Sponsor/Contractor experience is more important than the developer’s personal financials

3. Existing Land Value and Tax Credits are counted towards the equity portion of the capital stack

4. Transferrable – Any future purchaser of the commercial property can simply assume the bond

5. Bond amount is determined by stabilized project value, not traditional financing ratios

6. Bonds for infrastructure or public works projects and affiliated structures are very attractive to the investor pool and garner the highest leverage

7. All potential tax credits and enhancements are uncovered during the bonding process by a bond attorney

8. There are several kinds of bonds. In the case of private industrial revenue bonds rather than municipal bonds the taxpayer is not liable for the coupon

9. So, what is the magic that makes bonds unusually attractive? Historically, the challenge has been to sell your bond. Where is the market? Is it stable? How do I minimize risk?

There is a little-known area of our federal government known as the Office of Foreign Asset Control (OFAC) for short. This agency was put into place after 9/11 to guard against foreign nationals, foreign governments, drug dealers and other unsavory entities that appear on the US federal governments watch list from bringing money into America.

Conversely, individuals or entities that have been approved by OFAC are allowed to bring funds into the US tax free…paying tax only on the capital gain as they invest. Finding an OFAC licensed consultant who pre-sells your bond during the bond creation process, ensuring a onetime funding pass, unlocking the mystery of bond funding.

Note: Akceler8, Inc. is a consultancy that brings together marketing and introductions to small and middle market companies seeking growth opportunities.

#Bonds #Finance #Privateequity #growth