Larry Kosmont, president and CEO of Los Angeles-based Kosmont Cos., tells GlobeSt.com that the new fund will target private developers who need mezzanine debt for redevelopment projects of $25 million and larger. The capital sources for the loans will be large corporations, institutional players and others who are also the same type of capital providers who might buy federal tax credits.
The fund, which is a joint project of Kosmont Financial Services and the Neptune Co. of Scottsdale, AZ, will provide the mezzanine debt at rates of probably about 7% to 8%. Kosmont notes that those rates are considerably lower than the rates that private developers must pay today for mezz debt. The Apex fund mezzanine debt will act like equity in that it will reduce the developers equity cost in a project. For example, he explains, in a typical financing structure a developer might borrow 80% of a project's costs from a primary lender and be required to put up the remaining 20% as equity. With an Apex mezzanine loan for 10% of the cost, the developer would then need to put up only 10% of his own money as equity.
Considering that planning, approving, financing, and completing a public-private partnership now takes years, it is almost inevitable that an unexpected budget gap is encountered along the way, in public-private developments Kosmont says. He believes the fund is especially viable now because of the municipal deficits, restrictions on tax increases, and legislation that consistently limits the financing available for redevelopment. Many cities, Kosmont says, already face financial pressures in ensuring the completion of public-private redevelopment projects.
Municipalities will play a part in the Apex fund in that they will be asked to pledge to repay the loan from the projects future sales and property taxes. The pledge serves as collateral only, Kosmont says, because the loans will actually be repaid from the operating revenue of the projects. But obtaining the municipal pledge will make the loan available at a lower interest rate than conventional debt.
The Kosmont Cos. specializes in services for public-private partnerships, operating as four separate companies: the Kosmont Partners real estate and economics advisory firm, Kosmont Financial Services, the Kosmont Realty Corp. brokerage firm, and the CrossPoint Advisors public affairs firm.
The Neptune Co. provides working capital to real estate developers and municipal governments. Brent Nerguizian is a managing member of Neptune Company and a principal in the Apex Equity Fund.
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