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CRIC Build-To-Suit Solution The
Scenario: Company C needs to build a distribution facility
for its continually expanding business. The company works with a developer or
broker to identify the land on which to build the facility, but chooses not to
assume the costs of acquiring the land and funding the construction of the facility.
It has more productive uses for its money and has no interest being in the real
estate business.
The Property:
- A to-be-built 200,000 square foot distribution facility.
-
The cost of acquiring the land plus the cost of constructing the facility
is $15 million.
The
CRIC Capital Solution:
- CRIC Capital agrees to purchase the property for $15 million prior to or
upon commencement of construction.
- On the closing date, CRIC Capital funds the land acquisition cost plus any
construction costs incurred to date (including any soft costs) directly to
the company. The balance of the purchase price is funded into escrow.
- When the property reaches completion, CRIC Capital leases the property to
the company. The company is responsible for completion of construction as
the agent for CRIC Capital. (The company may retain a developer or contractor
to do the actual construction.)
- The company draws from the escrow as construction progresses, eliminating
the need for separate construction financing.
- As with similar CRIC Capital Transactions:
- The lease will be a bond net lease.
- The basic term will be for 15 to 25 years with one ten-year renewal
term and four five-year renewal terms for a total of at least 45 years.
In addition, there would be an interim lease term during the construction
period.
- The company has complete control over the use of the property and is
responsible for all operating costs, including real estate taxes, utilities,
maintenance, and repairs.
- The rents are based upon the company’s credit standing at the
time of closing. The rents can be fixed, stepped or periodically reset
in a number of ways.
The
Benefits:
The company substantially enhances its financial position going forward and
realizes the following benefits:
- The CRIC Capital Build-to-Suit Solution enables the company to fund new
construction, including the cost of the land acquisition, without tying-up
its capital or credit in land and buildings.
- With no mortgage or other indebtedness to be carried as debt on the company’s
balance sheet, the book value of the company’s assets is effectively
understated — enhancing the company’s Return on Assets (ROA).
- The rent is fully deductible over the lease term, making the company’s
after-tax cost less than with alternative forms of asset-based financing.
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