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We have been advised that an institutional group is now seeking out University student housing development programs, or proposed University parking asset development programs. The most relevant fact pattern is something like the following : Fact Pattern ==========:
* Essentially, the
finance vehicle is predicated on obtaining a 25 year net lease from a University
at a rating of A or better. * The vehicle will
provide debt at 100% of all developmental costs for the student housing----other
than the underlying land , which continues to be retained and owned by
the University. * The University will
lease the land to the student housing project at $1 per
annum. *At the end of the
lease, the University will have the option to buy back the student housing
property at $1. * The student housing
property is managed either directly by the University or its agents-- with the
actual rents independently set by the University or the managing
agent. * Accordingly, the implicit rate on in the net lease will be based on a cost-effective capital markets rate and will thus afford the opportunity to "arbitrage""-the differential revenue streams--- i.e. based on the prevailing difference between the true cost of the debt and the actual student rents to be collected. In consequence, the net effective cost to the University would be diminished.
* The institution
is solely a passive investor--- with no interest in a development role nor
in creating a management role. * So the net consequence to the University is in their accessing the production of more student housing or parking assets at a cost-effective rate, in minimizing the true net interest cost of the undertaking; in preserving an important asset under the University's long term control; and thus in reducing the required University capital outlay.. * And for a borrowing Developer, there is to be a systematized access to capital----rather than its "having to re-invent the wheel" with each undertaking. If you have any questions or observations, please do feel free to call Mr. Margolin at 203-353-0897. Best. Harold Margolin Chilmark Associates
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