Advice on commercial deal - Posted by Rob

Posted by Ed Garcia on January 14, 2000 at 17:19:57:

Rob:

No personal guarantee, NO DEAL.

Read the writing on the wall. When a mans not willing to stand behind his work, or his
service. He’s telling you something.

I’d, SHOP THE DEAL.

Rob, the way the game is played. When building a project from the ground up, you should be
between 75 and 80% LTV regardless of the deal you are getting with the contractor.

Another way you can do this deal, is to see if the seller will subordinate their position to a
construction loan. Remember if the seller sees that you are building a project that could
increase the value of the property, by adding improvements. They might play.

The contractor is controlling this deal from the start. I would take control of the deal.
I’m still going to be at my contractors mercy, and believe me they can play games.

One of the things you might do is have a time frame in this deal for completion.
Give the contractor enough rope to hang himself. When you settle on a date and the contractor
don’t make it, he is subject to fines. Rob, rarely is it a fair deal, when the contractor is your
partner. He is getting paid if the deal is profitable or not. I’d be careful.

Ed Garcia

Advice on commercial deal - Posted by Rob

Posted by Rob on January 14, 2000 at 06:38:39:

I know a contractor who wants to build a small 6 unit flex building.

The costs are as follows:
$60K land
$328K cost of total building

The contractor is uing his crews and contacts to get the building built at below retail cost.

The contractor would like to do the project with no presonal guarantee.

He is ok with doing one for the construction loan. He has little cash but has access to investors who be willing to buy the land or take an ownership.

My first question is if a lender would loan money on this deal keeping in mind that the contractor would be able to take one unit of the five and also that the deal is only about an 80% LTV.

The building should appraise for more ($400-$475) in this area.

I suppose the investor could buy the land for cash and subordinate in to the bank if the bank was willing to loan on this LTV.

Any help or guidance would be appreciated.

Rob