Establishing a new project => learn more
If you are an Entrepreneur or Developer, one of the required skills is deep knowledge in finance, and economy in addition to the other skills required for the project.
Moreover, surround yourself with the right counselors.
The developer company from Chicago, the project is a commercial combination of luxury hotels and residences in one of the coveted areas.
The client request for licensing Standby Letter of Credit (SBLC) 100M USD, in order to be qualify, the client needs to provide BCL from his bank, therefore, the client submit a request to the Bank – credit committee to issue BCL that includes payment of fees 13% and undertake to return the SBLC 15 days before maturity. His bank refused.
Why did the bank refuse?
What is the type of project?
Why you need SBLC?
Who is your adviser?
The client answer, we are Real Estate Developers, our project about 200M USD, the bank give us approval for Senior debt 150M USD, so we need 50M as equity, and the timeline to build the project around 4 years, we expect the IRR on the project 25% – 30%.
We need the SBLC to do the leverage, the bank agreed to give LTV 75% upon the SBLC, therefore, 50M will go as equity, and 25M for SBLC Costs for two years.
Sorry, This is not a good stretcher for equity funding, and the bank never agrees to your request. SBLC’s are for trade business not for Real Estate, maybe as equity, but need to do feasibility, for knowledge, there are other and better stretchers for Real Estate.
By the Clients information the viability calculation:
The cost of issuing a licensing SBLC on the amount of 100M is 13% = $13M and that for 4 years is – $13M*4= $52M
Utilize the instrument to get LTV 75% – the loan in the amount of $75M for 4 years, bank interest about 2%.
The IRR feasibility on the project ~ $275M at the end of the project – 4 years.
Bank Loan as – Senior mortgage – $150M + Interest about 2%.
Equity loan upon the SBLC – $75M + Interest about 2%.
Cost of the licensing SBLC – $52M
Total ~ $277M + Interest
This may be a good project but very expensive equity cost.
We have more than 200 stretchers and instrument that you can utilize for your project funding for example:
Mezzanine leverage debt, you need to do deposit in our IOLTA escrow NY, only $15M, to secure the deposit we issue a guarantee-surety bond issued from an A-rated insurance company. Upon the deposit, we syndicate the leverage to the amount of $50M, we take a second-degree mortgage on the project, and your SPV shares pledge as collateral.
The interest rate of the mezzanine debt 8%.
Now you make good profits of around 60M.
Do you have $15M USD available?