Projects financed through PropertyFit can eliminate a property owner’s upfront investment and create immediate positive cash flow. PropertyFit financing can also lower operating costs, improve the value and market competitiveness of the asset, and help the property achieve energy performance mandates. Let’s compare PropertyFit with owner-funding and traditional bank financing for a $350,000 project that generates $40,000 annual utility cost savings.
In this example, the project requires a $350,000 cash investment from the owner that would take nine years to recoup. If the owner doesn’t have that type of cash, can’t wait nine years to recover their investment, or plans to sell the property in three or fewer years, this project likely won’t move forward.
Traditional Bank Financed
Traditional bank financing may offer a lower interest rate than PropertyFit financing, but often requires the owner to invest a portion of their own cash into the project, typically a minimum of 20 percent of project costs. And, while the monthly payment amount may be based upon a 20-year amortization period, bank financing usually has a 5 to 10-year balloon payment which requires the owner to refinance the debt. Given these parameters, the bank financing in this example would require a $70,000 cash investment from the owner and would initially take 3.7 years to become cash flow positive. However, because of the balloon payment due in year 10, the actual payback period is just over 15 years.
Financed with PropertyFit
Now take a look at PropertyFit financing. PropertyFit covers 100 percent of the cost of the project, requiring no cash investment by the owner. The weighted average life of the improvements being installed is 25 years so the entire PropertyFit financing is fully amortized over that term—no balloon payment or need to refinance at a point in the future. And, even though the interest rate on the PropertyFit financing is higher than the bank financing, the project is cashflow positive in year one.
That’s how PropertyFit can shift what was once a capital expenditure into a cash flow positive investment in improved building performance. Run the numbers for yourself to see how PropertyFit can change the value proposition in your project.
PropertyFit is one of the first programs in the nation to offer property assessed financing for new construction projects which can accelerate the development of greener, more efficient buildings in Multnomah County. This innovative new financing tool unlocks capital to achieve superior building performance at more favorable terms then traditional mezzanine debt or preferred equity. It will change the makeup of your capital stack and can significantly reduce your weighted average cost of funds.
And, if improved building performance and reduced costs of funds aren’t enough, PropertyFit’s unique structure offers other valuable improvements over the traditional capital stack. Take a look.
To qualify, projects must exceed energy code by 15 percent. If they do, PropertyFit can finance up to 15 percent of eligible construction costs. Want to go deeper? If your project exceeds code by 30 percent, PropertyFit can finance 25 percent of eligible construction cost—a strong incentive for owners and developers to construct high efficiency buildings. Click here for details on new construction technical standards.
Let’s compare PropertyFit's impact in a sample $10 million new construction project.
Investment terms vary by investor and type of capital invested. We’ve assumed the following investment rates and limits in our example.
Project at 15% Above Code
In this example, the project exceeded energy code by 15 percent. The result is that PropertyFit financing can substitute for 75 percent of the project’s mezzanine debt needs and reduced the overall cost of funds by 60 basis points resulting in a $60,000 annual cost savings.
Project at 30% Above Code
Increase the efficiency of the project to 30 percent above code and PropertyFit can now substitute for the entire mezzanine debt tranche and cuts the equity investment in half. All while reducing the cost of funds by 125 basis points and saving the project $125,000 annually.