Creative Financing

[Greg Gallucci]

I have the opportunity to purchase a 100 unit apartment complex. The owner had recently taken out a CMBS loan that offers no ability to prepay without a significant penalty. We would need to assume the loan at a relatively unfavorable rate and put $1.2mm down for a $3.4 - 3.8mm property. I am trying to think of another way to acquire the property without assuming the loan and having to put out 30%+ for a down payment. Possibly a Master Lease. Anyone have a good strategy for this?

Thanks

Greg

[Bill Gulley]

If you think about it, whatever you do besides a straight purchase, you'll be "assuming" that loan one way or another. I doubt the seller will subsidize the payments for you. 

At this scale, you need legal assistance, this can be done with a master lease arrangement and you can also secure your interest as a future advanced note/obligation agreement to cover additional money invested on repairs. You can use a lien position behind the existing loan. 

This deal is not going to be accomplished safely as most approach an option to purchase, your agreement could well be 100 pages or more, addressing terms of sale, how liens for advances are applied toward the purchase, your interests acquired prior to other liens filed, insurance assignments, that's not counting lease assignments, attachments of lease terms and conditions, maintenance agreements and schedules, authorization to encumber the property and to pay liens. This ain't no house deal!

You're looking at a long term purchase and management agreement. It might be better for you to purchase the owning entity instead of looking at it as just a real estate transaction, move into that owner's position at the entity level. The seller(s) may have personal guarantees on the loan, I don't know, but those should be addressed to indemnify the seller. As a seller, I'd want a performance bond as well, that is reasonable.

Multi-million dollar commercial transactions are above the pay grade of 99 % of the members on BP, maybe 99.9%, see your attorney and begin with a letter of intent. 

First, identify the upside, what can you do better than current management? 

If you have good enough reasons why you should do the deal, the how can be made to happen. Good luck :)