Tales From the Vault, Episode 1: Unchain a Line of Credit

Having a banking relationship is essential because it can unlock innovative solutions to financing conundrums. Here is the story of one such dilemma, and how AMG helped solve it.

A long-time client at AMG’s metro-New York City office had an opportunity to develop a residential campus in a western state. Ordinarily, the land the client owned would be used for a development loan to annex and zone the property. The borrower would have to inject cash for the costs not covered by the loan. The next loan phase would bring utilities to the site and begin construction of other infrastructure such as roads, curbs and gutters, fire hydrants, and drainage basins. This phase might require a letter of credit to assure the regulatory authorities the project would be completed as represented. After that, assuming appropriate approvals by the county or municipality, building construction could start. Then the marketing and selling of the product begin.

This whole process is expensive and time-consuming. The borrower was eager to get started and his AMG advisor suggested he use his investment portfolio to his advantage as collateral for an Investment Line of Credit loan to finance the whole project.

This had several advantages: the client wouldn’t have to liquidate any of his investments to raise the cash to inject into the project; he wouldn’t incur a potential tax consequence from liquidating his portfolio; he wouldn’t have to form an investor group to make the project happen; he wouldn’t incur all the costs associated with a real-estate loan such as appraisals, title work, inspections and construction draws; and he had complete control over the timing and development of his project without interference from third parties. Plus, the interest rate was significantly more favorable than traditional development/construction financing.

It only took a few days to put the portfolio loan in place whereas the alternative would have taken several weeks. The client has been able to develop his project without the pressure of deadlines imposed by outsiders and has the peace of mind to market the project at a pace suitable for him.