Suggestions to DevelopersDecember 19, 2019 • Author: Howard Taylor
Be clear and communicative when detailing your expectations regarding the debt and or equity you feel comfortable with, be it ground up or existing. Detail. what if any TIFS, grants, credits, PACE Bonds or other outside third-party funds are expected to be considered equity. Be certain that the line items in your Pro-forma, match legal documents about a given specific line item. Understand the timing and flows of third-party equity expected, and show a timeline, as one of your financing documents.
Detail developer cash to date, to be treated as equity along with planned costs expected to be developer paid. An S&U with specificity allows for a transparent slotting of debt and equity. Negotiate your lender or equity provider’s term sheet. They are negotiable, and you will be best off to set a goal for each item you want to be modified. Prioritize those items, and pick the top 4 or 5 key deal points you want to discuss. Once those are satisfactorily in hand, polish off “housekeeping” items.
The fewer the iterations of a tern sheet the better. Keep in mind that before issuance of a term sheet, be it debt or equity, mutual trust was developed that needs to be nurtured. Be prepared on each deal point, where a modification is requested, and why it’s justified. A mutual “deep dive” before term sheet execution will eliminate possible issues down the road.
Generally, there is going to be a deferral of a material portion of the developer fee, the lower the actual percentage of the capital stack, the developer contributes. This line item has elasticity but needs a realistic “ask”, to garner the alignment of interests satisfying both parties.
Keep the cadence of the give and take between the sponsor and the debt and or equity source fluid. When a hiatus occurs needlessly, it allows unknown outside forces, to enter the cadence, and possibly derail a meeting of the minds.