New trends in real estate project financing; new opportunities for contractors and financiers

New ideas create better quality of life and wealth

Rizal Philippines
June 9, 2017

I just had a trip to a Region I municipality.  It is a first class municipality with 130,000 population making it eligible for a real estate project.  The deal was if I say the site is suitable for the real estate project, the financier will buy the land, we enter in a joint venture.   All I had to do was say it is great for the project:   it will sell, and deliver cash flow and ROI to the lot buyer.  However, since location is the prime consideration for that type of project, (the two sites are 7 km from the town proper) I said no.   However, they pointed to me an alternative Plan C site which is flat, (does not need much development cost) and much nearer (only 3 km to the town proper)

Later during the day I met a politician contractor.  I thanked him for us working together for the last 10 years.  He supplied us with heavy equipment and transit mixed concrete (We currently have a million peso supply agreement)  And I gave him two suggestions:   to be co developer (ie that he will do the construction) and have a share of cash flow as developer say 10 to 20% of the amount for sharing.   (say 50 -50% jv, they will get 10 to 20% of our 50% in effect from 80 - 20% to 70 - 30%)

We typically talk of the usual equity by the developer and bank loans.  It need not be the case.  Some people with money look for better returns by being the land owner, and co developer.   The co developer, typically a contractor, may forego payment but be reassured of a recurring cash flow or income

I even encouraged him to go into a real estate project in his town for the same project since he can not be a local LGU exec forever.  He needs recurring income (say monthly cash flow) as what his friend of similar position did in our project.   His family (he is now deceased, a victim of political violence) gets nearly a million pesos cash flow a month That is a lot for a legitimate project where their only investment is the land

It may mean less income for the sponsor (us for instance) but we can shorten the gestation period of the project, lessen the work, equity on our part, (even less manpower for construction) we can sell faster early on and concentrate on our core competency:  the selling and marketing part. And beautifying the project (the product) presentation (COBS)