Real Estate Structured Finance- Overview And Examples

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Real EstateStructuredFinance

• W

• Overview
• And
• Examples

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Definition of structured finance
Are you looking for alternative funding options
for your business? Then look no further than
opting for real estate structured finance to
fulfil your financing needs. Structured finance
offers complete funding solutions for large
enterprises that are not content with
conventional financing methods. You can choose
structured financing as a perfect alternative to
meet the financial requirements of the business.
Structured financing involves various financial
instruments in accordance with the nature of the
transaction. Thus we can say that it is similar
to the procedure for project finance.
Additionally, during a real estate structure
finance, the bank obtains as security a charge on
the cash flows generated or potential cash flows
in exchange for funding the transaction. The
profits or cash flows are utilized for returning
the loan. Nowadays, many corporations have
started using real estate structured financing to
meet their current and future business goals.
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Advantages of structured financing for your
business

• Funding a large business requires a significant
  capital injection, which cannot be fulfilled by
  small lenders. You can only obtain such funding
  with the help of an investment bank.
• Secondly, a traditional loan is transferable,
  which means it is possible to shift it between
  different debt forms while it is not so with a
  real estate structured loan, which is provided
  generally on a project to project basis according
  to the specific requirements and specific
  structure of each project.
• Thirdly, structured financing offers innumerable
  benefits for corporations and businesses, such as
  increasing business reach, handling risks, and
  devising new financial instruments to meet the
  upcoming obstacles.

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Process of availing real estate structured
financing
Before deciding whether to grant loans for real
estate projects, the banks like to evaluate the
specific project with regard to the capital
available and debt required. Additionally, this
assessment will be separate from sponsors' other
initiatives and track record would be a deciding
factor for the transaction to take place. Before
providing real estate project finance, banks like
that the risks involved are duly mitigated. It is
done by assessing its assets' ability to generate
revenue by putting it up for rent or sale. The
financing for the real estate project would be
carried out by creating a special purpose vehicle
( SPV ). The purpose of SPV is to differentiate
an investment both legally and financially from
its promoters/sponsors. Even the project's cash
flows can be utilized to pay back the debtor or
to return the sponsors' equity capital share
after the loans are repaid as per the covenants
of the term sheet. The forms of collaterals
offered while availing of structured financing
can be of two types, i.e. tangible security such
as a debt against a property, such as guarantees
and contractual covenants. The contractual
guarantees are given more preference while
obtaining loans from the bank to assure that the
project would generate cash flows.
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Who can obtain debt financing

• All kinds of real estate can avail debt
  financing. They can generate cash flows both for
  projects in the development phase or already
  prevalent properties producing income. The
  properties given below are eligible for financing

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• Entertainment parks
• Offices
• Houses
• Cinema halls
• Retirement homes
• Restaurants etc.

The loan can be obtained for construction
expenses or to purchase the property. An
approximate idea of the project costs and
potential cash flows needs to be provided to
obtain financing for the purpose of
construction. Similarly, in the case of housing
projects which are in the development stage, the
funding provided can be subject to terms and
conditions based on the number of houses sold,
etc. Additionally, attention must be paid while
signing the clauses in the rent agreement for
the acquisition price.
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