Finding development capital through private investors : an examination of real estate investment trusts, pension funds, and syndications

Abstract

Problem StatementThis research proposes to examine three alternative methods that developers can utilize for successful land development: REITs, Pension Funds, and Syndications. This examination will include whether these financing techniques are being used to their fullest capability today, and will investigate the various advantages, disadvantages, and benefits these new techniques can offer to developers in comparison to traditional lending sources.HypothesisREITs, pension funds, and syndications are valuable financing sources that offer many advantages to developers and are currently under-utilized as a financing source. All three techniques can provide greater economic and social benefits to a developer than traditional lending institutions.RESEARCH DELINEATIONSThe research for this project accomplishes several things. First of all, the use of traditional financing sources (banks and savings and loans) is examined to show why they no longer dominate the real estate financing industry. From there, the background of all three "unconventional" financing sources are examined to determine why these methods became options for developers today. This project is structured to determine if these sources can fill the void left by traditional sources, and if these financing techniques are in fact good substitutes for traditional sources. The dynamics of each financing source is investigated to determine how they apply to different development projects. This study also investigates the various advantages and disadvantages to using these financing sources for development. Furthermore, the future of these financing alternatives is explored and predictions are made about what one can expect in the future regarding these three financing techniques. This study examines why these three financing techniques are not used to their fullest capability today, and offers suggestions on how each can be better utilized. Finally, the paper compares each new financing technique to traditional lending to see if REITs, pension funds, and syndications can offer more benefits to a developer than a lending institution.What this study has not done is describe in any detail other financing sources developers can utilize (such as insurance companies, credit unions, and mortgage companies). This study focuses strictly on REITs, pension funds, and syndications in comparison with traditional lending sources such as banks and S & Ls. These three financing instruments were selected for a reason. First, these methods have increased the most in use over the last decade. While no technique has completely filled the void left by conventional financing, these three have come the closest. Second, many believe that these three techniques offer the most potential to developers as a source of capital. For these reasons, the research has been restricted only to those three methods. This study compares the three financing methods to traditional lending sources, but does not compare them to each other. The paper also does not distinguish between different types of development projects. The focus is on the financing method, rather than the project itself, and no distinctions are made between residential, commercial, office, or industrial development projects, as the financing methods can apply to all of them. Finally, the research does not examine the distinction between development financing (obtaining and improving the land) and construction financing (building the project). The techniques apply to both, and the difference between the two is not investigated.