How to find alternative sources to finance your real estate venture

There are myriad programs available to commercial and industrial real estate users that provide low cost capital and incentives for new investment. In addition to conventional financing, there are nontraditional sources of financing, tax deferral and tax mitigation strategies that can stretch your equity dollar.

Smart Business spoke with Bob Brehmer, CCIM, SIOR, principal at NAI Daus, about financial aid programs that can benefit commercial and industrial real estate users.

What are port authority conduit financing and construction savings programs?

If you are considering an acquisition of property, new construction or redevelopment of an existing structure, you should visit your port authority. It can direct you to financing and other programs that may be of benefit. For instance, one of its programs provides for state and local sales tax exemptions on materials for new construction and expansion projects. This can offer considerable tax savings that can be used to fund equity or be reserved for other investments.

Your port authority can arrange financing at higher loan-to-value ratios and can accommodate other structures such as conventional loans, grants, capital leases and operating leases. Bond fund programs allow borrowers to access capital markets and secure long-term fixed interest rates.

There is an ability to integrate other sources of financing such as those available through state, city and county programs, and other conventional financing methods. Eligible business can be industrial or commercial as well as 501(c)(3) and governmental entities. Funds can be used to acquire and renovate existing buildings or for land acquisition and new construction. The programs have been used to fund student housing, manufacturing facilities and redevelopment projects.

What is PACE and what is it used for?

The acronym PACE stands for Property Assessed Clean Energy. It is a method to finance energy-efficient and renewable energy upgrades to buildings by using special assessments. Cities, villages and townships are authorized to participate with property owners who want to install energy efficient improvements and upgrades.

A special assessment district is formed to finance eligible projects with special tax assessments. The assessments are placed on the property owner’s tax bill and are collected over five or more years.

If you are considering a solar, solar-thermal, geothermal or other customer-generated energy project, this may be a program to consider.

What other programs would you recommend?

The EB-5 program, for example, which allows foreign nationals to receive a permanent U.S. green card by investing in new or troubled U.S. businesses and New Market Tax Credits, can be utilized to help fund new and redevelopment projects. These programs are complicated, but have been used in this area for various high profile projects. Fortunately, we have a number of excellent sources and service providers in the area to assist firms using these programs.

One of the more dynamic, but lesser known, programs is the U.S. Foreign Trade Zone Act (FTZ). Created by Congress in 1934, the program is used as an incentive to encourage companies to keep jobs and investments in the U.S. A FTZ removes certain costs and barriers that do not exist in foreign locations.

FTZs also create a designated area that is considered to be outside the stream of international commerce. This allows certain types of merchandise to be admitted to the FTZ without being subject to customs, duties or some excise taxes. The benefits are numerous, including but not limited to the deferral, reduction or elimination of duties. An FTZ also permits activities such as testing, assembly, relabeling, repackaging and storage of goods. Northeast Ohio has two: FTZ 40 in Cleveland and FTZ 181 located in Summit County.

Your next project may be financed by your traditional lender relationship. You should, however, investigate the nontraditional sources of capital and financing available to business. You may end up receiving more flexible terms while retaining more of your hard-won capital for other investments. ●

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