Re: For Ed and others…Please Help!!! - Posted by ray@lcorn
Posted by ray@lcorn on December 18, 2000 at 11:15:03:
(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
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.