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The Following RCF Financing Examples Allowed The Real Estate Developer/Property Owner To Capture The Value Of Their Properties
EXAMPLE 1 | EXAMPLE 2 | EXAMPLE 3 | EXAMPLE 4
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EXAMPLE 1
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| $7.0 Million |
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Property Purchase Price |
| $1.0 Million |
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Environmental Remediation |
| $1.0 Million |
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Remediation Loan Carry Costs |
| $15.0 Million |
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Hard Cost |
| $6.0 Million |
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Soft Cost |
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| $30.0 Million |
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Total Project Cost |
| $44.0 Million |
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Total Sell Out |
| $14.0 Million |
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Developer Profit |
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The property was environmentally remediated within one year, allowing the developer to begin construction and sell out the project for a $14 Million profit. The time value saved by remediating the site prior to being accepted into the Brownsfield Program was three years.
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EXAMPLE 2
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The property owner runs a business on an environmentally contaminated site. Because of the increase in the value of the real estate the owner wants to either sell the property or refinance it. Due to the environmental problems on the property, the owner is unable to sell it or refinance it with a bank unless he is willing to take a severe discount on the value of the property. An RCF loan would allow the property owner to capture the full value of the property for himself.
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| $7.0 Million |
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Property Value Environmentally Clean |
| $3.6 Million |
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Property Value with Environmental Problems |
| $1.0 Million |
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Environmental Cleanup |
| $400,000 |
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Remediation Loan Carry Costs |
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| $2.0 Million |
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Equity Value Increase with Cleanup |
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EXAMPLE 3
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| $6.0 Million |
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Property Acquisition |
| $1.6 Million |
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Environmental Cleanup |
| $7.6 Million |
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Total Cost |
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| $35.0 Million |
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Property Value |
| $27.4 Million |
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Profit |
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127-acre property acquired for $6 Million with environmental contamination estimated at a $7 Million cleanup. The developer sold off all of the clean parts of the property to other developers to fund the demolition and environmental remediation of the remaining contaminated portions of the site. Upon issuance of an NFA by NJDEP (2-1/2 years after acquisition) traditional financing was available and the developer had a land value of $35 Million. The cleanup actually totaled $1.61 Million.
With an RCF loan the developer would not have had to sell off the clean parcels of land and would have captured that value for himself.
Estimated value with an RCF loan:
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| $6.0 Million |
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Property Acquisition |
| $1.6 Million |
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Environmental Cleanup |
| $784,000 |
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Remediation Loan Carry Costs |
| $8,384,000 |
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Total Project Cost |
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| $55.0 Million |
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Property Value |
| $46,616,000 |
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Profit |
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EXAMPLE 4
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| $4.6 Million |
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Property Acquisition |
| $5.0 Million |
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Potential Environmental Liability |
| $500,000 |
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Actual Remediation Costs |
| $5.0 Million |
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Renovation - Hard and Soft Costs |
| $10.1 Million |
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Total Project Cost |
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| $28.0 Million |
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Property Value |
| $18.0 Million |
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Profit |
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Real Estate Developer purchased an existing 200,000 square foot industrial building with a potential $5 Million environmental liability at a significant discount. By quantifying the environmental problem and remediating it he was able to create equity value for himself of $18 Million. Environmental problem was actually $500,000 after further testing.
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