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FAR

Financing for Expansions and
Refinancings of Commercial and Industrial Properties

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What  Industrial Development Bond Financing

Purpose   Finance the acquisition, construction, expansion or refinancing of commercial and industrial properties

Interest Rate                  2.00%  -  3.00%  Variable
(current)                          4.00%  -  6.00%   Fixed
(Rates Depend on Type of Project)

Term    Up to 25 years

Minimum Project Size    $2,000,000 

Projects                               
Manufacturing, Warehouse or Distribution, 501-c-3 facilities, certain Commercial Projects       

Project Size  
Manufacturing/501-c-3                  $1,500,000 - $20,000,000
Distribution, Commercial             $4,000,000  and up
And Refinancing

Interest Rate                                                                                    Variable          10 Years Fixed
(Including                             Manufacturing/501-c-3                  2.50%                         4.00% Annual Fees)                       Distribution, Commercial              3.00%                         5.50%  
                                                And Refinancing

Term                                     
Up to 25 years for real estate, 10 years for equipment

Criteria     

Standard loan underwriting criteria
75 - 85% LTV
1.25x debt service coverage
Last 3 years of profitability for user/tenant

IDB Closing Costs            
4 - 5%    (Majority of costs can be financed through IDB)

Timing
90 – 120 days to IDB funding. Bridge financing can be arranged to accommodate real estate closing timetables where needed.           

Additional Benefits 
IDBs provide construction and permanent financing; Manufacturing and 501-C-3 projects are also exempt from Doc Stamps and Intangible Taxes.           

This financing program is offered in conjunction with a Financial Advisory and Consulting firm specializing in Industrial Development Bond Financing for Commercial and Industrial projects.  They have completed over $500 million in low interest rate (fixed or variable), construction and permanent financing for over 100 projects throughout the Florida market.

Summary

Tax-Free Industrial Development Bonds or IDBs are a type of tax-free municipal bond issued by a county,  city, or other authorized agency for the benefit of a private company to finance the construction or expansion of a manufacturing facility or 501-c-3 facility and/or purchase of new equipment. The interest rate paid by the Company using IDBs is substantially lower than conventional market rates. The borrowing company is responsible for structuring the bond issue, locating investors willing to purchase the bonds, and for repaying the principal and interest on the bonds. The issuing municipality does not guarantee the bonds, and there is no ongoing governmental involvement in the project. Prospective IDB projects must meet certain eligibility and credit criteria. Industrial Development Bond projects are also exempt from paying certain documentary stamp taxes and intangible taxes related to the project.

Financing Structure

The two most common financing structures for an IDB are 1) a “Private Placement” whereby a financial institution will purchase all of the IDB and hold it in its own portfolio; and 2) a “Public Offering” whereby the IDB is sold in large denominations to multiple investors by a bond underwriter. Typical terms for an IDB are 20-25 year amortization, and an equity requirement of 15-20%. The interest rates are determined by the bond market, and rates can be either fixed, variable or a combination. The closing costs for an IDB are approximately the same as for SBA financing, and about 2% higher than for conventional financing, but the interest rate is usually 3 to 4% lower. Most of the closing costs can be financed through the IDB.

Qualifications for Manufacturing Projects

- IDBs can be used to finance new building construction or existing buildings, and new equipment

- The use of the facility being financed must be primarly for manufacturing purposes, which includes assembly.

- An IDB project may consist of real estate only, or real estate and equipment, or equipment only

- All assets financed with IDBs, including equipment, must use straight-line depreciation

- Maximum 25% of the bond issue for land. Land over 25% of the IDB can be financed separately

- If acquiring existing buildings, borrower must perform rehabilitation of 15% of building value. 
                         
- Tax-Free IDBs cannot be used for inventory, working capital, or refinancing of existing debt.

- Maximum permitted tax-exempt amount is $10,000,000 for manufacturing facilities.

- Capital Expenditure limitation of $20,000,000 for period 3 years prior to IDB to 3 years after IDB

- No minimum project size, but $1,500,000 is considered minimum economically feasible.

- Project must demonstrate financial feasibility. Companies normally must have an operating history.

- Project must demonstrate job creation, and be an environmentally safe, desirable industry.

- Project must meet all local codes, ordinances, zoning requirements and other guidelines.

Taxable IDBs

Taxable IDBs can also be structured to finance non-manufacturing projects, or manufacturing projects exceeding the $10,000,000 limit. The interest rate would not be tax-free, but would still be lower than conventional rates in most cases. Taxable IDBs can be issued for projects such as warehouse/distribution, industrial parks, corporate headquarters, mixed-use facilities, and to refinance existing debt. Minimum economically feasible size is normally $4,000,000 for a stand-alone project.

Comparative Rates (4th Quarter 2009)