Financing for Expansion and Refinancing of Commercial and Industrial Properties
What Industrial Development Bond Financing.
Purpose Finance the acquisition, construction, expansion or refinancing of commercial and industrial properties.
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 And Refinancing | $4,000,000 and up |
| Interest Rate | Variable | 10 Year Fixed | |
| (Including Annual Fees) | Manufacturing/501-c-3 | 2.50% | 4.00% |
| Distribution, Commercial And Refinancing | 3.00% | 5.50% |
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 facility being financed must be primarily used 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 (3rd Quarter 2009)
| Tax-Exempt Floating Rate |
Tax-Exempt 10-yr Fixed Rate |
Taxable Floating Rate |
Taxable 10-yr Fixed Rate |
|
|---|---|---|---|---|
| All-in Interest Rate | 2.50% | 4.00% | 3.00% | 5.50% |