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Re: [carfree_cities] Financing

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  • James Rombough
    ... Both: venture capital for construction, and LEM for individuals purchasing the property. Not everyone will need a LEM (same as a regular mortgage but with
    Message 1 of 4 , Jun 28, 2000
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      --- Ronald Dawson <rdadddmd@...> wrote:
      > James Rombough wrote:
      > >As bad as capitalism may sound to some folks, I
      > think
      > >big profits for a developer is the only way to get
      > >carfree cities started in a reasonable amount of
      > time
      > >(depending on the level of government
      > interference).
      > >Big profits in any industry draws more suppliers,
      > and
      > >the more suppliers you have (i.e., developers), the
      > >more carfree cities you have.
      >
      > Are you thinking along the lines of venture capital
      > or maybe even using
      > L.E.M's (Location Efficient Mortgages) for starters?
      > http://www.locationefficiency.com/
      > Dawson

      Both: venture capital for construction, and LEM for
      individuals purchasing the property. Not everyone
      will need a LEM (same as a regular mortgage but with
      higher borrowing limits), but I can't think of
      anything other than venture capital for the
      construction (and planning and all that stuff). Not
      being a finance expert, this is my guess.

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    • J.H. Crawford
      Regarding the financing discussion: Real estate projects are generally undertaken by developers. These guys have to have some of their own money to put into a
      Message 2 of 4 , Jun 29, 2000
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        Regarding the financing discussion:

        Real estate projects are generally undertaken by developers.
        These guys have to have some of their own money to put into
        a project, typically somewhere in the range of 10% of total
        costs. The remaining money comes from banks under a variety
        of loan packages.

        "Contruction loans" are just that--temporary loans to a
        developer to build the agreed project. "Carrying loans"
        are issued after the project is finished, to tide the
        developer over until all or nearly all of the space has
        been sold. Both of these types of loans are typically at
        quite high interest rates.

        The next project we want to build is a full-sized carfree
        district, with a population of about 10,000 plus stores
        and workplaces for that many or somewhat more people. I
        estimate that this will cost about $1 billion. That means
        we need a developer with $100 million. (In really large
        projects such as this one, it might be possible to get the
        banks on board at a 95% level, if they can be convinced
        of the viability of the project, which will in itself be
        something of a trick, since bankers are nothing if not
        conservative--they understand sprawl and how you make money
        doing it.)

        Of course, with big projects, it's not unusual to have more
        than one developer involved, so we don't have to find a
        single developer with $100 million, which, while not impossible,
        is a bit of a stretch.

        "Venture capital" is normall for the establishment of new
        businesses and not for real estate development.



        ###

        J.H. Crawford _Carfree Cities_ ISBN 9057270374
        postmaster@... http://www.carfree.com
      • Martha Torell
        ... I have wondered if some of the dot com billions would find their way to development. If a developer did not have to borrow to build or support himself
        Message 3 of 4 , Jul 3 11:38 AM
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          "J.H. Crawford" wrote:
          >
          > Regarding the financing discussion:

          I have wondered if some of the dot com billions would find their way to
          development. If a developer did not have to borrow to build or support
          himself until the units sold, he would be able to call all the design
          shots himself. Banks are not going to want to lend money for radical
          design like car free. Further, the developer could go into the finance
          business himself, lend money only for the purpose of paying for units in
          his development. He could write it into the contract that if you need
          a mortgage to buy a place in the project, you borrow only from his
          finance company. Of course there would be proper safeguards against
          discrimination and price gouging. The developer's rates would track
          along with other mortgage rates, neither higher which might repel
          buyers, nor lower which would set up friction from general mortgage
          companies.

          If the buyers defaulted, the property would go back to the developer.
          And he would get all that interest. For years. It would exceed the
          profits in the typical borrow-build-sell-pay off cycle. And the buyers
          would be able to take the mortgage interest tax deduction.

          After some success and defining a building ethic and style, he could
          probably go public with it, sell stock to repeat the project. It could
          be one of the greenest stocks ever -- car free mixed complexes, with
          electrical trolley transportation. Could be it would spread and
          consume some sprawl.

          Martha
        • James Rombough
          ... (snip) The dot-com money is looking for a quick profit; real estate of any type is not quick at all. ... What you are describing about the developer being
          Message 4 of 4 , Jul 3 12:16 PM
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            --- Martha Torell <eyrehead@...> wrote:
            > I have wondered if some of the dot com billions
            > would find their way to
            > development.
            (snip)

            The dot-com money is looking for a quick profit; real
            estate of any type is not quick at all.

            ...

            What you are describing about the developer being the
            lender makes no sense. The developer borrows money,
            builds the property, and then sells it. If the buyer
            defaults later, the lender forecloses on it and may
            have to take a loss (depends on the foreclosure sale
            price and the leftover mortgage balance). Why should
            the developer care if the buyer defaults?

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