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https://www.prudentialprivatecapital.com/perspectives/ using-credit-tenant-lease-financing-for-build-to-suit-construction
https://www.pricoaprivatecapital.com/perspectives/ using-credit-tenant-lease-financing-for-build-to-suit-construction

Using Credit Tenant Lease Financing for Build-to-Suit Construction

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Learn about how we provided construction-to-permanent financing for a Canadian developer and a Fortune 100 Corporation to facilitate a build-to-suit manufacturing facility.

What is Build-to-Suit?

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.

Transaction Overview

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.

Transaction Structure

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
This article represents the views, opinions and recommendations of the author(s) regarding the economic conditions, asset classes, securities, issuers or financial instruments referenced herein. Distribution of this information to any person other than the person to whom it was originally delivered is unauthorised, and any reproduction of these materials, in whole or in part, or the divulgence of any of the contents hereof, without prior consent of Pricoa Private Capital is prohibited. Certain information contained herein has been obtained from sources that Pricoa Private Capital believes to be reliable as of the date presented; however, Pricoa Private Capital cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. The information contained herein is current as of the date of issuance (or such earlier date as referenced herein) and is subject to change without notice. Pricoa Private Capital has no obligation to update any or all of such information; nor do we make any express or implied warranties or representations as to the completeness or accuracy or accept responsibility for errors. These materials are not intended as an offer or solicitation with respect to the purchase or sale of any security or other financial instrument or any investment management services and should not be used as the basis for any investment decision. Past performance is no guarantee or reliable indicator of future results. No liability whatsoever is accepted for any loss (whether direct, indirect, or consequential) that may arise from any use of the information contained in or derived from this report. Pricoa Private Capital and its affiliates may make investment decisions that are inconsistent with the recommendations or views expressed herein, including for proprietary accounts of Pricoa Private Capital or its affiliates.
The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies to particular clients or prospects. No determination has been made regarding the suitability of any securities, financial instruments or strategies for particular clients or prospects. For any securities or financial instruments mentioned herein, the recipient(s) of this report must make its own independent decisions.
Pricoa Private Capital (‘PPC’) is a trading name of PGIM, Inc. (‘PGIM’), 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”). In the European Economic Area (“EEA”), information is issued by PGIM Private Capital (Ireland) Limited with registered office: Pramerica Drive, Letterkenny Business and Technology Park, Letterkenny, Co Donegal, F92 W8CY, Ireland. PGIM Private Capital (Ireland) Limited is authorised and regulated by the Central Bank of Ireland and operating on the basis of a European passport.
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July 26, 2023

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