Okay, so let's move back into the Apex Project. Who's going to lend to them? Local banks and S&L's make construction loans. There are national real-estate development lenders. You can look all these up on the Internet. Also we have crowdfunding sources like Fundrise, RealtyMogul, etc. Which is very helpful especially if you're an entrepreneur starting out. [COUGH] And a construction lender obviously needs to know about a lot of specialized stuff, development processes that are normative in the US. Local site conditions, local climate, local construction code practices, zoning code, construction laws, all that stuff. Okay, so now we're getting together with the lender or CAG is and how is this going to work? Well the lender is going to have a feel for what kind of interest rates that they're charging. Okay, and they usually charge off a benchmark called the prime rate. It's an interest rate that commercial banks charge to their most credit worthy customers. And if you're an entrepreneur, you can bet they're going to charge a much higher interest rate to you. And the next important thing about the lender is their primary requirement, their primary way they can have a safety factor with you is to set what's called a loan to value ratio. Loan to value, universally abbreviated LTV is equal to, for a construction loan, the amount of loan principal outstanding, up here, okay, divided by the completed, eligible development costs. And we're going to define that carefully right now, okay? First of all, few things, the value in loan to value is cost based not sale price based, okay? And eligible costs down here, eligible development costs, usually only include what lenders call hard costs, okay? So that's going to be permanent construction, land, so building foundations, the building structure, the land that it's sitting on, that sort of thing. It's not going to include what they call soft cost intangibles like attorney's fees, permit fees, designers' fees, etc. Also, usually not included are contingency costs, which the lender says, it's your mistake, I'm not going to lend you on your mistake. If you have cost over-runs, that's your mistake, you've got to deal with it. And, I just want to emphasize here, these things are all negotiable in the commercial world, so some lenders may include land as something eligible to get a loan against, some may not. Some may even include your architectural plans, if you have plans from a world famous architect like Rafael Viñoly, they might loan against that. So these are all negotiable, okay? And the each piece of the loan we get is only going to be released after the eligible tasks are completed. We'll see how that works in a second. And then down here we see how the lender keeps a safety factor in case the developer flames out on them. What they always want to have is the total amount of the loan draw at all times during the construction process is less than or equal to the loan to value ratio times the completed eligible costs. So this is their safety factor. All right, that's their safety factor. Okay, so as I said already, the purpose of the LTV is to protect the lender in case the developer goes AWOL or bankrupt. And some common LTV ratios, just to give you a feel for land purchases, 50 to 60%. For development construction, only 70 to 80%, design/build less than that, 60 to 70%, that type of thing. So here you see on this page a real world example that is actually was, in 2012, published by this lender on the Internet, just out there for everyone to see. And so we're interested, this particular company, BMC Capital, makes loans to developers. And it also makes loans to operators, folks who are going to own the apex apartments once there are tenants in them, and enjoy the cash flows from the rent. So let's look particularly at the developer loans rate. Now, so in 2012, BMI was saying on new construction they would have 65% loan to value, they would loan money for construction out to one year at an interest rate somewhere between 8 and 15%, okay? And you can look up other things like this on the Internet very easily. Okay, all right. So now, let's go back to Apex, and let's see what a CAG is able to negotiate with their lender, okay? So I'm going to say as negotiated with the lender here. As negotiated with lender. Okay, so their lender tells them the loan to value is going to be 60%. The interest rate is going to be 1%, okay? And this is going to be monthly. That's going to be our monthly r is 1%, and we'll use our EAIR to translate that to annual a little bit later. They're charging only back-end fees, which are going to be 2% of the future value of all the loan draws. Okay, all right. So one of the first things the lender does after getting these big picture items all setup is they come along and look at the developer's schedule, total cost schedule, and they morph that into eligible loan cost schedule. Okay, so they go line item by line item and say, are we going to loan against that? Is that going to be what we consider an eligible loan cost? So in this case, their lender saying the land purchase, we'll loan against that. The attorney now, we're not going to loan against anything that your attorney does. We are also not going to loan against any of your architectural work, engineering work, landscape design work, okay? We're just throwing that out. For construction, we are going to loan against virtually everything in construction accept contingency. because to us, meaning the lenders, if there's a contingency cost, it's because you, the developer, made a mistake in estimating the cost of your project so we're not going to loan to you against that. That's your mistake. Similarly, they decide we're not going to loan against attorney's fees for leases, definitely not against marketing, and also not against contract disputes, okay? So now we have an eligible loan cost schedule from the lender, okay? And you see it's a smaller amount, of course, than the total construction cost which was 3.8.... 3.8 million, we're down to 3.1 million the lender is going to loan against. So the lender is also going to say that CAG is going to have to follow the timeline on that previous page, okay? And the maximum amounts paid will be developed from this eligible cost worksheet. All cost overruns paid by the developer, okay? And the developers equity, we're going to call the amount of cash the lender requires the developer to contribute to the project. Which is essentially everything the lender is not going to lend for this project, okay? Usually a construction lender is going to say that we're not going to get into this with you, unless you already have a buyer. In other words, you've negotiated with Holiday Inn to build a property for them, and they guarantee to buy it as long as you build it to their specs. Or in the case of Apex, we are not going to do this unless you guarantee that you're going to be 90% pre-rented by the end of month 10 or 11, something like that. Okay so that's our minimum percent rented, which is what we have for Apex. Apex has to agree to have this thing 90% pre-rented by the end of month 11. Okay, other things we can get are, like I said, a purchase commitment. Things like that.
