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Most capital funding proposals fall flat on their face and
are DOA before the underwriter ever even bothers to look at the funding
proposal. The rejection rate for capital funding proposals easily
exceeds 90% in today's capital markets. It's not that these plans
aren't presented in full-color detail so as to catch the eye of the
reader and engage them; far from it. Most plans are now being
submitted electronically, so full-color detail isn't as big an issue as
it was even five years ago.
When it comes to capital funding
proposals (click here for a peek
at a sample report) the key issues that seem to percolate to the top are:
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Summary Page. The summary page
is really important because it provides the reader with the
opportunity to quickly determine whether or not the proposal may in
fact conform to the investor's underwriting requirements.
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Presentation Order. The
document should flow from one matter to the next in a building block
fashion - the same way the due diligence presentation is
created.
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Elements. The document has to
have the "four corners of the deal" as it were that
include the following:
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The program economics have to
make financial sense. All required sources of capital
funding have to be identified.
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The project team has to have a
demonstrable track record of success for development management,
construction management, operations management, professional
services (legal, accounting, audit, investment banking, etc.).
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The due diligence documentation
is complete and the conclusions clearly documented.
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The plan has to have an exit
strategy that works for the investor and all the other
participants. The exit strategy is based on the findings
of your due diligence documents.
Once you have checked to determine that
you have the four corners clearly covered, then comes the part that is
not so fun. You have to have it critiqued by someone who doesn't
have a stake in the game. We hope you have RMC do it, but that
isn't a requirement. The person who reviews the plan should have
excellent grammar and composition skills but they don't have to be a
financial expert. What they need to accomplish in this evolution
is a reality check. The central question is whether or not the
plan is understandable to the average financial services industry
manager, so if your high school son/daughter can read the plan and be
able to discuss the broad terms and issues, then you are ready to
commence the project financing cycle. If not, revise it until they
do; it is as simple as that.
The final touch comes in the form of a syndication
of fractional real estate ownership interests (tenants-in-common
plan) that can provide equity financing for projects having a
development budget of at least $2.5 million. The syndication
program may provide financing as early as the project's pre-construction
phase, while the developer may enjoy a substantial increase in financial
investment leverage and project liquidity. All tailor made for
commercial real estate development programs and projects.
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