ADVANTAGES
OF USING INFRASTRUCTURE BONDS
VERSUS CONSTRUCTION LOANS:
Lower
interest rate - the interest
rate is lower on these bonds (due to their tax-exempt
status) that developers can save substantially over
traditional financing. For instance, if you issued $5
million in bonds at 6% rather than a traditional loan
of 7 1/2%, you would save $75,000 in interest in the
first year alone!
Lower
upfront costs - a developer
may have to advance funds for appraisals, engineering
reports, etc., but all costs will be reimbursed when
the bonds are issued. There are no fees or points as
is typical of traditional financing.
All
issuance costs are included
- all costs related to issuing the bonds are included
in the bonds' proceeds, including bond counsel fees,
underwriter's discount, etc.
Bonds
are assumable - the bonds are
repaid by payments made from assessments against the
property to be developed. The assessment is attached
to the property, not the property owner.
Thus, if the developer sells the project to a builder/consumer/operator,
the buyer will be able to take advantage of the cheaper
financing as well.
Simplicity
in obtaining bonds - bonds are
essentially a take-out for the construction. Thus, a
developer can go to a lender with a take-out source
already in place! In addition, the bond proceeds are
payable in increments, meaning that when each stage
of construction is complete (i.e. finished grading,
completed a road) that portion of the funds is paid.
These incremental payments can be used to payoff the
construction loan. This lowers the amount of construction
loan required by the developer, and reduces the total
interest paid on a construction loan.
Capitalized
interest - up to 2 years of
interest payments can be deferred so the developer will
not have to make payments during the construction and
lease-up/sales period.
BOND/INFRASTRUCTURE
FINANCING PROGRAM
The
following items are required for us to review an infrastructure
bond deal:
- Tentative
map (recorded or ready to record)
- Detailed
cost breakdown
- Cost
basis of land (when and for how much was land purchased)
or ability to purcahse land (if applicable)
- Developer's
financials and background (including list of completed
projects)
- Any
3rd party reports completed to date (appraisal,
feasibility, environmental, engineering, title,
etc.)
- $5,000
retainer fee for sight inspection and other related
costs (reimbursable when bonds are issued)
