Bonus Depreciation Expense Allowance Based Tax-Advantaged Syndication Transactions

The bonus depreciation expense allowance (or "BDEA") is, by any measure, perhaps the most cost-efficient commercial real estate development finance tool to come along in a generation.  The bonus depreciation expense allowance creates the condition precedents necessary to allow a developer of commercial real estate to access institutional investor support for their project that does not necessarily come with a mandatory equity dilution requirement.  For the developer it is a "have your cake and eat it, too," scenario that should not be overlooked under any circumstances.

The advantages of this approach to providing equity capital contributions for commercial real estate development transactions include:

• Institutional investors are not forced to underwrite the real estate or the resulting operating business; the institutional investor is underwriting only one key issue - will the project meet the placed-in-service deadline.

• The business deal between the developer/sponsor can be based solely on the capture of the bonus depreciation opportunity, thus eliminating the prototypical equity security dilution hit the project ownership entity would otherwise be forced to swallow.

• The business deal may (depending upon the structure of the funding proposal) allow the close of escrow for the transaction to occur prior to the commencement of construction.

• A ready market may exist for the resulting sale of securities on a private placement offering basis to "Qualified Institutional Buyers" ("QIBs" - as defined per Rule 144A of the Securities Act of 1933, as amended).

Aggressive pricing structures are a fundamental requirement of making this institutional investment tool work for the developer, as well as an acceptable funding structure - and that's where Rainmaker enters the picture.  Rainmaker can provide you with a structured finance funding plan that incorporates all of the available investment incentives, as well as providing the developer/sponsor with the necessary transactional due diligence services required to support the program.  The issues we bring forward for consideration and disposition include:

• Structure of the construction contract - this is critical as the elimination of construction risk exposure is a fundamental tenet of a successful private placement offering; and

• Creation of an allocation plan that, if accepted by the institutional investor, limits the equity dilution requirement because the institutional investor is looking to the BDEA for their economic opportunity and not the future value of the business or real estate business.

Find out more about the value of this important tax-advantaged equity syndication product.  Contact Rainmaker and get some answers that will actually help you make your project work.