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3 Real Prop. Prob. & Tr. J. 325 (1968)
Contemporary Real Estate Financing Technqiues: A Dialogue on Vanishing Simplicity

handle is hein.journals/rpptj3 and id is 361 raw text is: CONTEMPORARY REAL ESTATE FINANCING TECHNIQUES: A Dialogue on Vanishing Simplicity BY FRANcis P. GUNNING* AND FRANK E. ROEGGE** New York, New York INTRODUCTION Innovation and accommodation are the characteristics of contemporary real estate financing. The financing requirements of today's real estate developer are shaped not only by his estimates of project costs, but as well by many other factors unrelated to the project analysis. At the same time, the type of financing then available to him is likewise influenced by matters quite distinct from the economics of the project. The financing form which results is often a tribute to the ingenuity of the parties involved for having reconciled their diverse and sometimes conflicting objectives. It is not sur- prising, however, in so doing, that few of these transactions are either con- ventional or uncomplicated. In aid of better understanding the novel financial designs which have so evolved, we might well here examine some of the motives of the con- tracting parties. For simplicity in reference, we will in this paper identify the party receiving the financing as the developer or borrower and the party furnishing the financing as the institution or lender. I. MOTIVATION DETERMINING TYPE OF FINANCING A. On the Part of the Developer Aside from baser motives, the developer may well have a real need, with which an institution can sympathize, for increasing the amount of the financing customarily available. This need may arise from unexpected and unusual costs for land, for the improvements or for fixtures to be incor- porated therein. The increase in financing hopefully must be in lieu of secondary financing because of the additional costs. Leverage is the goal of all developers and this is achieved with a minimum cash equity, coupled with a high loan, which thereby results in the highest rate of return on this minimum equity. A municipal borrower may need capital for necessary public improvements while at the same time limited by statute as to the amount of outstanding debt. An alternate financing device, other than debt financing, must therefore be devised. Corporate borrowers are particularly sensitive of debt items on their annual statements and so prefer an alternate financing which results only in rental obligations which, if shown at all, are carried merely as footnotes on the statements.1 The most frequent and significant consideration in structuring a *Asociate General Counsel, Teachers Insurance & Annuity Association. 0OAssociate General Counsel, Metropolitan Life Insurance Company. 1AccouNTNc. REsEARCH BULLETIN No. 43 issued by Committee on Accounting Proce- dure of American Institute of Certified Public Accountants, pp. 125-127 (1953); S. E. C. REGULATION S-X 12.16 Note 5 (1950).

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