What discount would you want to buy this note? - Posted by Steve Parker
Posted by Steve Parker on September 13, 2004 at 12:21:27:
I’m in the process of acquiring a new construction strip center just outside Atlanta and need some input on market value of a 2nd position note being created in the deal.
Building is brand new, has 9 bays, all 9 are now leased on an NNN basis to 5 solid local businesses (popular sports restaurant has 4 bays). Leases run 4 - 10 years and have a 4% annual rent escalator built in. It’s located 200 yards off an Interstate exit in an area seeing rapid development, including expanding the road off the exit from 2 to 4 lanes.
Purchase price is $2.55 million, 80% 1st mortgage from local bank and 10% 2nd mortgage of $255k carried back by developer at 6% interest for 5 years, note alsu due in 5 years. DSCR is 1.2x against the total 90% financing. The developer would like us to help him sell this 2nd position note to cash him out but doesn’t know what discount would be required.
Our question to you experienced note buyers is what discount should we expect to be able to sell the note to an unrelated 3rd party buyer? Any other advice on making the note more attractive also is appreciated. Thanks!