Bond selling

Neil3030

So a friend's company needs to raise finance (~500k) for a construction project, but he'd be a bit young/green for banks to consider.

Can any companies sell bonds? How/where can you do this? Is it worth it for this level of debt?

Any advice welcome.

Neil3030

Neil3030 wrote: »

So a friend's company needs to raise finance (~500k) for a construction project, but he'd be a bit young/green for banks to consider.

Can any companies sell bonds? How/where can you do this? Is it worth it for this level of debt?

Any advice welcome.

Honest advice from someone that has put together various construction projects, I don't see that as an option for your friend. Its more of a dream. Who on earth would buy bonds from a green real estate developer? Would be financial suicide. Its a high risk business.
In terms of financing projects 10 years ago people like your friend would do it through pre-selling, and just come up with enough money for the land and the design initially, sometimes not even that. But theres more regulations now to stop people doing that.

If he wants to raise initial funds for a construction project, you need a partner with a chunk of money, you buy the land, leverage the land as an asset to the bank, and get them to finance most of your construction. Two separate loans, one on the land, one on the construction. Overall the funds put in should be around the 25% personal/75% commercial give or take. Relying on future sales to fund construction (if thats even possible anymore in ireland, its not where I am) is very high risk. I did it on my first project and it was 4 years of perpetual risk and uncertainty.
Another way of doing it is do a JV with the landowner so you dont have to buy any land, and get that person to agree to leverage the land with the bank to raise funds for design, and initial construction phases, with a construction loan on top of that. If the bank lends on the land it would be based on the construction project proposal, so they will either lend for both or for neither from my experience.

pedroeibar1

The amount is much too small for any project to be deemed ‘commercial’ as it would just about build a decent house/office excluding the land cost. The fact that he has been turned down by several banks is an indicator of the project’s nonviability/his lack of skill/experience and his lack of a project success history. Everyone thinks they can become a property developer, which is patently untrue and why the construction sector in this country is a basket case.

Cashflow is critical in construction; the fact that the friend has totally misunderstood ‘bonds’ would indicate a lack of financial management skills, another negative. In construction stage payments are the norm, advances usually being made after certification on foundation, wallplate and roof level, as detailed by El R above.

Bonds can be issued by companies, but any plan on selling them to the public incurs very high costs and heavy regulation. The 500K he's looking for would just about cover the fees involved, normally the minimum amounts are in the tens of millions, usually in the hundreds. El R's suggestion of a co-development venture with the asset (land/building) owner might be a possible avenue worth exploring but the lack of cash suggests otherwise.

He should look at obtaining investment from friends -possibly could finance it by issuing redeemable preference shares linked to the project.