How does a start-up Real Estate Development firm obtain capital?

By Contessa Petrini, MBA, PhD

I was asked this question this morning by a client and have been asked several times in the past. It depends on the type of capital and the type of development. The initial funding to conduct a thorough due diligence investigation and feasibility study is the smallest amount, but ironically the hardest to come by. Your source of funding for those items, as well as entitlements, will likely be the same.

Traditional lending sources, such as banks, pensions, and insurance companies, are more likely to finance during the acquisition closing and construction phases. You should build into your budget the reimbursement of the early soft-cost items with the equity and debt you secure for the acquisition and construction phases.

Other areas of financing include: Seller financing, conduit lenders, tax credits, tax exemptions, local government / semi-goverment agencies, federal government programs, tenant/occupant financing (build to suit projects), mezz and bridge lenders, JV’s with other development companies and vendors, TIC’s, high net worth individuals/families, wealth managers, public and private REIT’s.

Lastly, you should consider your own equity position and control in the development as a source of equity. Can you defer your development fee for back-end returns? Can you tie up the property with options or a long contingency or closing period?

If you need a consultation please contact B.I.M. Investments today.

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