How Can I Raise Money for a Development Project? 

For development projects, the raise is often done in phases. 

Phase 1, Land Acquisition and Entitlement:

The first phase requires raising enough money to tie up the land with a purchase option, or to acquire the land outright and to obtain entitlements needed to get the property from raw land to the building-permit stage. This may include obtaining zoning approvals, utility and access easements, plat maps, engineering, surveys, etc. 

Phase 2, Construction:

The second phase happens when the construction lender conducts an appraisal of the entitled land and determines how much they will lend compared to the total project cost. Sometimes enough value has been created during entitlement and the passage of time, that no further down payment is required for the construction loan, meaning no further capital needs to be raised from investors. But if there is a shortfall between the construction loan amount and the total project cost, an additional capital raise will be required. 

Pro Tip:

Equity is created during the entitlement process, giving the developer some options for a profitable exit, such as:

  1. Sell the entitled land to a builder for its current appraised value and split the profit with Phase 1 investors who helped acquire and get the land entitled. 
  2. Construct the project themselves. If the developer chooses this option and more capital is needed than the construction lender will provide, the best practice is to sell the interests in the title-holding entity to a new entity that brings in additional investors. The new entity will pay the appraised value for the entitled land. This allows the early investors (pre-construction) to capture the equity they generated by entitling the land, which is considered the riskiest part of the deal). The developer can raise enough from Phase 2 investors to get paid cash for all or part of the entitled land value or they can convert the amount owed to them into equity as a Phase 2 investment.  
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Are you ready to raise private capital?

At Syndication Attorneys LLC, we are committed to your success – book a consultation with one of our team members today!

Are you ready to raise private capital?

At Syndication Attorneys LLC, we are committed to your success – book a consultation with one of our team members today!

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