Synthetic Tax Increment Financing (Synthetic TIF) is commonly utilized to finance a portion of a real estate development project, specifically for qualified infrastructure costs such as:
- Purchase of land
- Construction of streets
- Construction of water, sewer, drainage
- Construction of parking structures
- Lighting and landscape projects
- Other site work
Unlike Traditional TIFs, which require the creation of a TIF District and supported solely from the incremental tax revenue resulting from increased property values, Synthetic TIFs can be issued as Certificates of Participation (COPs), providing the bond holders with additional security, such as a portion of the revenue from a municipality’s general fund.
Advoca Capital works jointly with the developer and the municipality issuing the Synthetic TIF Bonds. Advoca structures and places tax-exempt Synthetic Tax Increment Financing and the proceeds from the sale of TIF bonds sold in the municipal securities market are used to finance development project costs.
This results in substantial benefits to developers. The cost of borrowing to developers is substantially cheaper if Tax Exempt Bonds are utilized to finance development rather than the developer having to secure a conventional bank loan for financing.
The Advoca Capital program utilizes a straightforward application and closing procedure and is funded by the issuance of the Synthetic TIF Bonds.
- Engage Advoca Capital as Advisor
- Advoca Capital undertakes an initial credit evaluation to determine if the borrower qualifies for the program.
- Advoca works with the developer in contacting the appropriate municipal issuer.
- Upon qualification, Advoca Capital sends the underwriting information to a group of acceptable Letter of Credit Banks, if applicable.
- Upon approval of the application by a Letter of Credit Bank, a Commitment Letter is issued to the borrower detailing the required security elements, operative loan covenants and other requirements and contingencies necessary for loan closing.
- Borrower’s counsel reviews the Commitment Letter.
- Borrower executes and returns Commitment Letter, along with any commitment fees stipulated in the Commitment Letter to Advoca Capital.
- Bond documents are generated and distributed to the financing team.
- Borrowers generally can be funded within 45 to 60 days following execution of the Commitment Letter.
