Posted by Natalie on December 18, 2000 at 16:45:50:
Ed, as a follow up, it was a pleasure discussing the game plan for condo conversions with you this afternoon. I appreciate the time you took to understand the proposed deal and to explain some options for me, complete with emails. I have a homework assignment that I am anxious to accomplish and will be getting back with you after Christmas. Happy Holidays to you and your family!
Natalie Schubert
Panama City, Florida
For Ed and others…Please Help!!! - Posted by Natalie
Posted by Natalie on December 18, 2000 at 08:37:01:
My partner and I want to buy an 84 unit apt complex. Our company has 19 units right now and we’re ready to move up. Problem is some banks don’t like us because we only make about $80,000 a year and we want to borrow 1.4 million to acquire this 2.4 million property (owners are financing 1 million). Any ideas on where to go for 5-7 year financing without prepayment penalties?
Our plan is to do a condo-conversion on 26 of the 84 waterfront properties and sell them off to pay off the owners and some towards the lender. Any ideas? How does your program address these issues and how do we construct a partial release clause so that we can sell off 26 apartments piece by piece (deed and all) while still owing 2.4 million. Each condo will sell for $80,000-$85,000.
Thanks.
Natalie Schubert
Panama City, Florida
Re: For Ed and others…Please Help!!! - Posted by ray@lcorn
Posted by ray@lcorn on December 18, 2000 at 11:15:03:
Natalie,
(NOTE: Ed is going to tell you a lot of the same stuff as I have noted below if and when you call him. This post was written before he posted his answer, and I hate to waste a good post, so it will be of use to get you ready for the phone call!)
For some excellent information regarding condo conversions, check out the following posts over on the commercial newsgroup.
The first is located at
http://www.creonline.com/commercial-real-estate/wwwboard5/messages/1435.html
the follow up is at http://www.creonline.com/commercial-real-estate/wwwboard5/messages/1458.html
As to financing the acquisition, you need to prepare a business plan and loan package that effectively and concisely explains your backaground, experience and financial capacity. You will need to substantiate in detail the market information that supports the sales price and sales (absorption) rate of the condo units. The plan should address the repayment plan for all debts, both as the units sell and on an ongoing basis. The plan should also have at the least a statement from an attorney supporting the conversion itself as a legal and allowable use for the property. Statements from municipal authorities, i.e. planning and zoning will also have to be obtained. If done completely, the plan should answer any question a lender may have.
The problem I see in the deal from the little amount of information given is that the deal is all leverage. I am assuming that the project will show a positive cash flow with the proposed debt structure. I also assume that the seller is willing to be in a second position with the $1M in owner financing. (If not, then it will be very difficult, if not impossible, to find a lender willing to come in with $1.4M in a second position.)
Even given the above assumptions, your loan is going to be difficult to place with 100% leverage. The reason is that lenders look for three basic capacities in a borrower… Credit, Capital (equity) and Experience (with the project type). It has been my experience that they will lend based on the strong presence of any two of those three. Since you are putting no capital in the deal, you must make your case based on your credit and experience. In a deal that relies on the sales of condos as an exit strategy, you will need to show the organizational skills and experience necessary for a sustained marketing and sales effort as well as rental management experience.
Just my thoughts. Ed is a wizard at structuring a deal, and I would encourage you to take him up on his offer to help.
ray
Re: For Ed and others…Please Help!!! - Posted by Ed Garcia
Posted by Ed Garcia on December 18, 2000 at 10:23:46:
Natalie,
I think the bank is not giving you the real reason for not lending to you. I think the bank doesn’t like the fact that you’re coming into the deal with no money down.
There are ways to restructure your deal to make it financable. I really like your deal, if your numbers are right, at $80,000 a unit, the building would sell at $6,720,000, not shabby. I have done a deal like this one before in Encino California.
You don’t give us the unit mix, and you don’t tell us the condition or if it needs any differed maintenance. You are purchasing these units at $28,571 a door.
The vary first thing I would do in with this acquisition, is to find out what it will take, and cost to get it white slipped. I then would contact my attorney, obtain my CC&R’s and move forward. I would have this project appraised as condo’s. I then would proceed to obtain financing on each individual unit.
Natalie, if you like you can call me at (909) 944-0199 and we can talk about this deal.
Ed Garcia