The Project Financing Rollercoaster
I write this entry as a reflection on my and Christy’s ride, as owners, on the project financing rollercoaster. This entry may not be of particular interest to a wide section of our intended audience, but to those of you that endeavor to actualize on projects of this nature, I offer up a splash of inspiration and optimism for your voyage into a banking arena not designed to facilitate non-conventional commercial construction. Add to that, that there might just be a nugget or an idea hiding in my words that is intended for you.
Christy and I are fairly practical when it comes to undertaking large engineering projects, as this is what we do in our day jobs. We also understand commercial financing strategies because we have owned and leased-out properties of the like for quite some time. Admittedly, we were rookies in commercial building construction. So, when Christy and I set out to actualize our dream of building the perfect workplace for our family, we naturally expected there to be some challenges in obtaining financing for our first-of-its-kind project. Many aspects of our dream had never been done before, let alone in harmony. A major element of the dream was our desire for traditional construction financing … and so the journey began.
As inspiration for this post, I leafed through the banker business cards stacked neatly on the corner of my desk—breadcrumbs from my quest for a financing deal that would prove that this type of project could be done in the range of traditional constraints and cap rates. Without this piece, one of the project goals would be missed. Anyone with enough cash can build a science project, whether it is government money or bursaries. Christy and I set out to build the business case for building sustainable office buildings; without a bank behind us, our model was broken.
Although I was never searched for drugs at any of the major banking headquarters, I am sure many of the finance professionals I interviewed were checking for needle marks in my forearms. This project had four areas of perceived high risk that rendered the “deal” too exotic for many of the household institutions.
The first, and most obvious, is that a net-zero commercial office had never been attempted in our market, and the perception of any first is that it equates to undesired risk. Although sexy, innovative and progressive, the chance of failure is a lot higher when the engineering and design is as critical as in this project.
Next was the contract delivery process (IPD) and how that would fit into the finance box—another first and a less desirable, non-traditional contract model.
“Let me understand this Dennis, you’re telling me that the entire team is sharing the risk and reward on this project and that if the project goes over budget due to construction issues, you don’t open your wallet?”
I lost a few bankers on this one and am certain that one or two of them checked to see if my last name was a nickname.
I really made knees shake when I described the leasing strategy and how we plan to use the spaces. Reduction of operating costs through shared work and common spaces is something Albertans do not consider as a means to minimize waste. Our western culture still desires “mine” and is averse to sharing with strangers, especially a washroom and kitchen! Undesired lease strategy was yet another perceived hazard in the success of the project. (More on this will follow in a subsequent blog).
To further the perceived lunacy, I explained how our companies were structured and that Christy and I have designed the Mosaic Family of Companies under the architecture of an employee ownership model. In this, the banks would not be able to take security by traditional means.
After eight months of searching and failed negotiations, we were able to negotiate a traditional financing package with one of Canada’s major banks. The story has many lows in between the spaces and, to be humbly honest with the reader, we had nearly given up. Patience, perseverance and just plain stubbornness yielded a partnership with a bank that believed in the core values of the project and burnt the calories to understand the model we had designed. Our trophy: win/win financing with standard amortization periods, market interest rates and comfortable security agreements that are not chock-full of risk mitigation.
I have left the names and institutions out because this entry is not designed to be a guiltless plug or a shameless stab. Rather, this re-telling should act as a beacon of hope for all those that we inspire to follow.
Financing for privately funded, “for-profit” projects like this is out there; you need only to search with stubborn determination.
My hope is that projects like this will no longer be outlandish or inconceivable in our part of the world as seen through the eyes of the contractor, architect or engineer. Add to that list: the man with the dolla dolla bills y’all.