A build-to-suit is when a company engages a developer for the construction of a custom real estate asset intended for the sole use of the company.
Below we outline an example of how Pricoa Private Capital's ("Pricoa") Credit Tenant Lease (“CTL”) team structured a one-stop construction-to-permanent financing solution.
A Canadian Developer (the “Developer”) and their advisor approached Pricoa to evaluate construction-to-permanent financing solutions for a build-to-suit manufacturing facility to be leased by a Fortune 100 corporation. For this large-scale transaction, it was critical for the Developer to secure financing in Canadian dollars and achieve a specific return hurdle for its equity fund LPs. After evaluating several financing alternatives, the Developer determined that our CTL offering was the most accretive option based on our tailored financing structure, lower overall cost, and beneficial amortization length.
Outcome and Benefits
Through Pricoa's custom structure the Developer achieved each of its transaction goals, including:
• Full funding in Canadian dollars.
• Securing fixed interest rate for the duration of the 21-year financing, including the construction period.
• Contributing targeted equity investment and cash flow return.
The project was structured to provide monthly advances to a construction escrow account over the 12-month construction period. Upon construction completion and acceptance of the lease by the tenant, rent payments are used to pay debt service on the financing. Pricoa's multi-currency capabilities funded the transaction in Canadian dollars, thus eliminating all currency risk for the Developer and the Tenant. In order to achieve the Developer’s targeted return, we sized the financing to provide excess cash flow (excess cash flow after debt service) during the term of the financing (post construction).
Learn more about credit tenant lease financing here.
Publish Date: July 26, 2023
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Pricoa Private Capital (‘PPC’) is a trading name of PGIM, Inc. (‘PGIM’), the principal asset management business of Prudential Financial, Inc. ('PFI'), and it is also a trading name of PGIM Private Capital Limited and PGIM Private Capital (Ireland) Limited. In the United Kingdom, information is issued by PGIM Private Capital Limited with registered office: Grand Buildings, 1-3 Strand, Trafalgar Square, London, WC2N 5HR. PGIM Private Capital Limited is authorised and regulated by the Financial Conduct Authority (“FCA”) of the United Kingdom (Firm Reference Number 172071) and registered in England No. 1331817. In the European Economic Area (“EEA”), information is issued by PGIM Private Capital (Ireland) Limited with registered office: IDA Business Park, Letterkenny, Co Donegal, Ireland F92 FP83, Ireland. PGIM Private Capital (Ireland) Limited is authorised and regulated by the Central Bank of Ireland and registered in Ireland under company number 635793 operating on the basis of a European passport. In certain EEA countries, information is, where permitted, presented by PGIM Private Capital Limited in reliance of provisions, exemptions or licenses available to PGIM Private Capital Limited under temporary permission arrangements following the exit of the United Kingdom from the European Union. These materials are issued by PGIM Private Capital Limited and/or PGIM Private Capital (Ireland) Limited to persons who are professional clients as defined under the rules of the FCA and/or to persons who are professional clients as defined in the relevant local implementation of Directive 2014/65/EU (MiFID II).