Types of Property Development Models
For many property development financing experts, the two most influential international property development financing models are the foreign real property development financing model and the domestic property development financing model. The key difference between the two is that the foreign model involves the use of capital from foreign sources to finance residential property development projects in countries such as Australia, Canada, New Zealand, and the United Kingdom. Domestic property development financing models typically require the use of a bank loan with various interest rates, so that property development projects can be completed on time. The purpose of this article is to provide property development financing models based on the use of bank loans that are available in the United States to help property development companies obtain bank financing for their property development projects.
Commercial Property Development
Commercial property development is one of the fastest-growing forms of property development financing in the United States. This type of property development occurs in almost all states across the country. The commercial property development model can either be carried out on-site by property development companies or it can be financed off-site through a variety of means. For example, the property development financing for a new supermarket or shopping centre must be approached using a different method than financing a housing development project. Regardless of where commercial property development financing is required, property development companies can obtain a wide variety of financing options for their projects.
Almost every major property development financing company in the United States has an investment property development division. These divisions manage a portfolio of property development loans for many property development programs. They also have separate loan teams that specialize in financing residential property development, business property development, and industrial property development. Most property development financing companies offer funding for residential property development projects through loans and lines of credit. In some cases, they will finance developments through either commercial real estate lenders or first or second lien property development lenders. One of the most common forms of property development financing used for residential property development is a tax equity lease.
Tax Equity Leases
Tax equity leases allow the property developer to finance the cost of constructing new buildings through the use of future tax returns. The property developer can receive a lump sum payment in return for leasing the future property taxes to the property owner. This type of property development financing is sometimes used for commercial property development projects because the tax equity lease allows the property owner to receive payments during the term of the property development agreement without having to raise funds before construction.
The commercial property development model also allows property developers to finance the cost of improving existing structures and sites. For example, a property development financing company may advance money to a property owner who wants to convert an industrial property into a single-family dwelling. The company would not advance the entire amount requested in the purchase agreement but would be willing to hold the money until the property is made ready for resale. The property owner would pay back the commercial property development financing company the money earned after a specified number of years. This type of property development financing is most often used when the owner wants to develop the property for economic or residential reasons.
Private Property Development
Private property development models refer to government support in land acquisition and development. In some instances, property development companies are owned by local governments. For example, in the state of Arkansas, property development companies are owned by the city of Little Rock. The city owns all right-of-way on the property and can deny development at any time.
The advantage of private property development financing is that it usually requires lower down payments and often a shorter term of repayment. It can also be obtained from different tax jurisdictions, which can make the process more flexible. However, property development financing may not be available for certain property development projects.
Governmental support for property development financing is becoming more common as both businesses and individuals look to alternative financing sources. Property developers can also seek financial support from local economic development agencies. For example, property development financing is provided through the Arkansas Economic Development Commission. The commission can also provide property development assistance to qualifying businesses or individuals that apply for such funding.