Real Estate Structured Finance- Overview And Examples

Real Estate Structured Finance- Overview And Examples

February 11, 2021 Admin
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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.


Definition of structured finance

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.


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.


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.

Real Estate Structured Finance- Overview And Examples

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:

  • 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.


Examples of real estate structured finance

There are a plethora of ways to fulfil the financing needs of large corporations. Some of them are listed below:

  • Syndicated loan
  • Hybrid securities
  • Credit default swap (CDSs)
  • Collateralized debt obligations (CDO)
  • Collateralized bond obligations (CBO)
  • Collateralized mortgage obligations

Wrapping up

If you are facing hassles while obtaining finances for your large business, then end your search and choose Resurgent India ( A Leading investment bank ). It's time to consider alternate finance options to ensure the smooth running of your real estate business. Don't put a halt to your business dreams.

Don't let your dreams be just dreams, turn them into a reality by real estate structured finance from Resurgent India.

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