How to effectively finance your project in a challenging market

In today's volatile market, securing financing for your project can be a daunting task. At Wold Architects and Engineers, we understand these challenges and are committed to assisting our clients in navigating the complex landscape of project funding. Our role extends beyond design and architecture; we partner with clients from the inception of their projects to ensure they secure the necessary financing and funding.

There are numerous options for funding a project, and at Wold, our team leverages extensive experience and industry relationships to help clients select the best approach. Whether working on educational facilities, healthcare institutions, or government buildings, we guide clients through a variety of traditional and alternative financing opportunities. With our deep network and expertise, we ensure that clients secure the most suitable funding sources, supporting them far beyond design and architecture.

Traditional Financing Opportunities

Traditional financing methods remain a primary choice for many projects. These options often provide stable funding but have their own approval processes and challenges.

• Tax Increment Financing: Local governments typically offer additional financing opportunities such as tax increment financing (TIF) or special assessments. These options can provide substantial funding for projects that promote community development and economic growth.
• Capital Dollars: Allocated as part of a Capital Improvement Plan (CIP), these funds are crucial for maintaining and upgrading infrastructure. Our team assists clients in securing these funds, ensuring their projects are prioritized.
• General Obligation Bonding: These bonds, backed by the full faith and credit of the issuing government, are a secure investment and typically support large public projects. Wold assists clients in preparing documentation and presenting compelling cases for bond approval.
• Community Donations and Fundraising: For projects like hospitals, community donations can play a crucial role in providing additional funding. Innovative approaches, such as selling personalized bricks or naming opportunities for ICU rooms, can both engage the community and generate funds.
• Bonding and Grants: Local bonding and federal grants are often earmarked for specific purposes, such as infrastructure improvements or community development projects.
• USDA Financing: The United States Department of Agriculture (USDA) offers financing opportunities for rural development projects. While these funds can significantly impact community projects, the approval process is lengthy and requires multiple levels of authorization.
• Community Referendums: These require community support and a well-organized campaign to educate voters but can be used to approve funding for large-scale projects. Wold provides strategic guidance to help clients navigate the process.

With a wide range of funding options available, Wold’s deep expertise and strong relationships with industry partners are valuable resources in streamlining the financing process, increasing the likelihood of approval and ensuring the timely start of a project. One key partner, Tom Sawatske, Head of Capital Markets at Mortenson, a leader in sports, renewable energy, data, and healthcare construction, shared additional insights on construction loan options and navigating the complexities of financing.

What do you see happening in the future regarding funding and financing, especially for large construction loans?

Lenders are currently navigating a challenging environment, due to a combination of steeply rising interest rates, falling property valuations and severe issues in the office sector. This situation is exacerbated by a looming maturity wall of low-interest loans due to refinance in the next couple of years, potentially causing distress for lenders and borrowers. Construction debt has been more challenging to secure over the past 18 months or so, but I foresee that trend to ease a bit in the next year. As existing loans begin to be repaid, I expect lender appetite will improve.

What trends or changes do you anticipate with USDA funding going forward?

Historically, clients often turn to USDA loans due to their reputation for lower interest rates compared to traditional nonprofit loans. However, as USDA rates have increased and the process has become more complex, many are exploring alternative financing options. Clients are becoming more savvy, looking into other routes that might allow for quicker project completion and better customization of deals. They’re also drawing on their network and previous experiences to find better financing solutions. Additionally, there are innovative financing structures, such as healthcare financing or turnkey solutions, that offer upfront funding and customization. For 501(c) organizations, strategically setting up leases can also enable access to tax-free funds, leading to lower interest rates.

How do construction managers like Mortenson benefit the owner, and how can early collaboration between construction managers and architecture firms help address industry challenges like outdated infrastructure and rising costs?

Construction managers play a pivotal role in delivering successful projects by offering expert execution and creative problem-solving skills backed by deep institutional knowledge and experience across economic cycles. They can also help customize payment and revenue structures, ensuring that projects are completed efficiently and effectively. For optimal results, it's essential to involve architecture firms like Wold from the very beginning of the planning process. This early collaboration ensures a seamless integration of design and financing strategies, ultimately increasing the likelihood of project approval and success.

Alternative Financing Opportunities

In addition to traditional methods, alternative financing options can provide flexible and innovative solutions for project funding. These options often involve partnerships with private entities or leveraging sustainable investments to help bring your projects to life.

• Investments from Sustainability Companies: Sustainability-focused investments are becoming increasingly popular as organizations strive to meet environmental goals. Companies like the Sustainable Investment Group (SIG) offer funding for projects that incorporate sustainable practices and technologies.
• Special Earmarks and Grants: Projects that address specific needs, such as new hospital wings or specialized treatment centers, may qualify for special earmarks and grants. These funds are typically designated for initiatives that address critical health needs, improve patient care or expand access to medical services.
• Eligible Rebate Programs: Utility rebates and tax incentives are available for projects that incorporate energy-efficient technologies and sustainable design elements. These rebates can significantly reduce upfront costs and provide ongoing savings, making projects more financially feasible. Programs like the Inflation Reduction Act also provide substantial rebate opportunities for sustainability and infrastructure investments.
• NHREFCO (Lease-to-Own): The National Health and Educational Facilities Finance Corporation (NHREFCO) offers a lease-to-own financing model, allowing projects to progress more quickly despite higher interest rates. This model provides immediate access to necessary funds while spreading the financial burden over time.

The Wold Difference

Securing financing in a challenging market requires expertise, creativity and dedication. By following these strategies and leveraging our expertise, clients can navigate the complexities of project financing and secure the necessary funds to bring their visions to life.

At Wold, we are committed to supporting our clients through every step of the financing process. Our comprehensive understanding of both traditional and alternative financing options, combined with our extensive network of partners and strategic approach, ensures that our clients can confidently move forward with their projects. If you are considering different financing or funding options for your project, contact us today to learn how we can help you achieve your goals.