Financing TAMA 38 Transactions

TAMA 38, a national outline plan for strengthening buildings against earthquakes, has become a popular tool for renewing and developing old buildings throughout Israel in recent years. Beyond contributing to the safety of buildings and their resilience to earthquakes, the plan allows for apartment extensions, additional housing units, and increased property value. However, financing TAMA 38 projects poses a significant challenge for many developers and property owners. In this article, we will review the various options for raising capital for TAMA 38 transactions and discuss the important considerations in choosing the optimal financing path.

1. Construction Mortgages: Commercial banks offer dedicated mortgage loans to finance TAMA 38 projects. These loans are based on the future value of the property after the construction and expansion are completed, allowing for leverage of up to 50%-70% of the costs. However, receiving mortgage approval is usually contingent upon meeting strict financial stability criteria, presenting collateral, and maintaining stable cash flow.
2. Interim Financing: Some banks and financial institutions offer interim financing solutions for the construction period itself, until the additional apartments are sold or rented out. This financing can bridge the gap between the available equity and the ongoing costs of the project, but it may sometimes involve high-interest rates and significant collateral requirements.
3. Specialized Investment Funds: Some banks have established specific investment funds that specialize in financing urban renewal and TAMA 38 projects. These funds offer a variety of financing paths, from bridge loans to equity investment in the project in exchange for a share of future profits. The financing is tailored to the unique needs of each project, although the criteria for loan approval may be strict.

4. Non-Bank Financing Funds: In recent years, many private funds have emerged that specialize in providing non-bank credit for real estate projects, including TAMA 38 transactions. These funds often offer more flexible loans than traditional banks, with reduced collateral requirements and quick approval processes. However, the interest rates on these loans may be higher, and it is important to choose a reliable fund with proven experience in the field.
5. Crowdfunding: Crowdfunding platforms allow developers to raise capital from a large number of private investors, typically through the issuance of bonds or shares in the specific project. This financing model is particularly suitable for developers struggling to obtain bank financing or those looking to diversify their capital sources. It is important to note that crowdfunding is subject to regulation and strict reporting rules in Israel.
6. Private Investment: Raising capital from private investors, such as investment companies, family offices, or "angels," can be an attractive financing solution for TAMA 38 projects. Such investors bring with them, in addition to capital, also experience, connections, and strategic added value. Generally, the investment will be made in exchange for a certain percentage of ownership or future profits from the project.

7. Risk Diversification: In many cases, combining multiple financing sources for one project can be the optimal strategy. Splitting the total financing amount between a bank loan, a non-bank financing fund, and private investment, for example, can help in risk diversification, improving financing conditions, and reducing overall financing costs.
8. Creative Models: In some cases, it is possible to develop creative financing arrangements tailored to the specific characteristics of the project or the developer. For example, providing investors with the option to convert the loan into shares in the project at a later stage, or a tiered payment structure depending on defined milestones. Such models require in-depth legal and financial advice but can offer optimal financing solutions in certain situations.

9. Cost of Financing: When comparing different financing alternatives, carefully consider the total cost of each option. Take into account not only the stated interest rate but also fees, handling charges, early repayment penalties, and so on. Also, pay attention to the adjustment terms to indices or currencies, as increases in their value over the life of the loan can significantly impact the actual repayment amount.
10. Requirements and Collateral: Different financing sources vary in the level and type of collateral they require as a condition for granting the loan. Always prefer solutions with moderate collateral and personal guarantees requirements to minimize risk and exposure of your private assets. Ensure that you understand all the implications of the collateral or guarantees you are signing.
11. Flexibility and Pace of Financing Provision: Consider the extent to which the chosen financing path allows you flexibility and a pace of provision that meets the ongoing needs of the project. In case of delays or deviations from the plan, it is important to ensure that the financing source allows for sufficient maneuvering space and ready access to capital as needed. This point is especially important in cases of financing through private investors or funds.

Financing TAMA 38 Projects can be complex and challenging, but choosing the right financing sources is critical to ensuring the success of the project and achieving the maximum return on investment. Whether you choose traditional bank financing, non-bank financing funds, private investment, or a combination of several options - always make sure to conduct a comprehensive analysis of the costs, terms, and implications of each alternative.

It is advisable to consult with financial and legal advisors specializing in the financing of TAMA 38 projects TAMA 38, in order to formulate an optimal financing strategy tailored to the specific characteristics of the project and the developer. Experienced professional advice will help you navigate the available options, minimize risks, and lay the right financial foundation for the project's long-term success.

If you are considering a TAMA 38 project and looking for tailored financing solutions, we invite you to contact us for an initial consultation. We will be happy to share the knowledge and experience we have accumulated in supporting dozens of projects in the field and help you realize the full potential of your building renovation.