Raising Capital for Real Estate Ventures
There are three types of real estate, Residential Real Estate, Commercial Real Estate, and Industrial Real Estate. As the underlying values and business all differ from one sector to another, it follows that financing for these three separate sectors will differ as well. Here at IntaCapital Swiss, we have facilitated many real estate projects across the globe. We explain how we facilitate such projects via the means of Collateral Transfer – raising capital or credit for businesses to push forward with their planned projects. Read on to understand more detail or get in touch with one of our financial advisors today for bespoke information, tailored to your project.
Residential Project Finance
Residential project development can take differing forms, from pulling down existing buildings for a rebuild, purchasing land for residential development, expanding development next to existing properties and renovation of properties that are run-down.
Developers looking to fund the above projects will look to secure residential real estate development loans or investments. Critical to the success of a residential project is choosing the appropriate financial model as there are many financing options available for residential construction.
There are several specialist companies, (property investment firms) that provide loans /investment for smaller and larger property developments. Banks provide straight secured debt. Larger projects are funded by venture capitalists, private equity funds, vulture funds, senior family offices and hedge funds with either a debt-equity split or straight equity funding. In some cases, a bank may provide debt funding on a syndicated basis if the loan amount is of significant value and the client is considered as a “blue chip”.
Finance can be made available from the start to the finish of the project. This means that the lender/investor will finance the purchase of the land, finance the construction of the project to turnkey, and finance the marketing operations. In another case, the developer may already own the land and may just require construction finance.
In other cases, the developer may suffer a liquidity problem halfway through construction and will seek funds so they may complete the project. If there is no significant debt and the developer has self-funded the build, a bank may well offer debt financing and as security take a lien over the land and buildings. Other finance on offer will be straight equity investment or a debt/equity split from the companies mentioned above.
Commercial Real Estate
As opposed to residential real estate, which is used solely for domestic home inhabitancy, commercial real estate is property (land or buildings), that will generate a profit either from business activities, capital gain or rental income. Commercial real estate is generally broken down into six categories,
- Office Buildings
- Apartment Buildings
- Restaurants and Retail
Financing Commercial Real Estate Projects
Commercial real estate is designated as an income-producing property, and as can be seen from the above there is an array of different income-producing properties. As such, the finance will differ from category to category
Finance for commercial real estate projects is usually made to business entities both small, large or conglomerate. Such entities can be corporations, developers (again both small and large), limited partnerships and on occasion trusts.
There are many types of business loans for commercial real estate projects such as lines of credit, term loans, equipment financing, construction loans and bridging loans. These of course are generally debt loans, but for more sophisticated investment/loans, these can be debt/equity splits, straight equity financing and sometimes government grants or loans.
Banks are very big into commercial property finance, but so are the specialist financiers such as commercial real estate development funds, private equity funds, vulture funds, hedge funds, sovereign wealth funds, venture capitalists and private investment companies. The private equity giant Blackstone was at the end of 2020, declared the world’s largest corporate landlord by devoting USD163 billion of equity capital to commercial property on a global basis.
Financing Industrial Real Estate Projects
Industrial real estate project finance is supplied by the exact same lenders/investors as set out in commercial real estate. Many of the bigger projects such as refineries, steelworks etc, will take a longer period to start turning a profit. The companies being financed for such projects are usually conglomerates, so a debt only package is usually utilised with a bi-annual interest rate, with the land and construction being secured by the lender.
These are large industrial sites that are scheduled for demolition. Such sites such as refineries will be demolished, and the land and subsoil cleaned of any pathogens. The land is usually designated for sustainable commercial and residential development. This is particularly attractive to developers as they can build homes, supermarkets etc on the land.
Therefore, diverse funding will be needed across the board. There will be a mixture of debt, debt/equity, straight equity finance for the different builds that will take place upon the land. In some cases, specialist Brownfield Funds will finance much of the project, leaving the remaining funding to banks and other lenders/investors.
IntaCapital Swiss and Real Estate Funding
We can give access to credit facilities to those companies being denied by banks and other traditional financial institutions, as well as the non-traditional financiers and more exotic lenders and investors.
Located in the heart of the financial district in Geneva, Switzerland, we can offer our clients highly motivated and exceptionally skilled financial managers and consultants. We offer an array of financial products and solutions, from mergers and acquisitions, private bond issues, securitisation and IPO’s to mention but a few.
However, the jewel in the crown is our Collateral Transfer Facility, a financial product that has gained in popularity over the last decade in Europe, the Middle and the Far East, Asia and South East Asia, the Pacific Basin and parts of the African Continent.
Collateral Transfer is the process whereby one company, referred to as a Provider, will transfer an asset or collateral, usually a Demand Bank Guarantee, to another company, known as the beneficiary
Essentially IntaCapital Swiss will match Providers with those companies, (Beneficiaries) who need credit facilities. The provider and beneficiary will sign a contract, a Collateral Transfer Agreement, whereby the provider agrees to transfer a Demand Bank Guarantee to the beneficiary for one year, (or longer) for a fee. This fee is known as a Collateral Transfer Fee.
Real Estate Projects – providing applicants, (beneficiaries), can prove they own the land on which the build is to take place, plus have a successful history in completing real estate projects, IntaCapital Swiss, subject to successful due diligence will be able to provide access to credit facilities in the amounts of Euros/GBP 10,000,000 – 150,000,000.
Demand Bank Guarantees
Whilst there are many bank guarantees in circulation, the one guarantee that can be monetised is the Demand Bank Guarantee. Demand Bank Guarantees come under the purview of the International Chamber of Commerce, ICC who set the standards and rules for international trade which includes Demand Bank Guarantees.
Whilst, not law, all the 45 million members in over 100 countries adhere to these rules and regulations including most banks. The particular rule that is applicable to Demand Bank Guarantee guarantees is the ICC Uniform Rules for Demand Guarantees, (URDG), 758.
URDG 758 states that all Demand Bank Guarantees verbiage will dictate their end-use. In the case of monetising, a Demand Bank Guarantee the verbiage will be so precise that any lender will immediately know they are 100% secure. Under this rule, Demand Bank Guarantees are payable on first demand.
Monetising a Demand Bank Guarantee
Once the Collateral Transfer Fee has been paid and the beneficiary has received the Demand Bank Guarantee on their account, they have a financial instrument that can be monetised. The beneficiary can now present a credit facility application to their bankers offering the Demand Bank Guarantee as security.
Any companies that have real estate development projects, be it industrial, commercial or residential, and are unable to get funding, are able to benefit from IntaCapital Swiss financial services – subject to due diligence. IntaCapital Swiss have been providing access to finance for over a decade and are one of Europe’s leading specialists in this area.