Creative commercial financing?

[Brian Ellis]

What would you do in this situation:

Business: Manufacturing

Commercial building valued at 2mil

550k left on mortgage

800k Line of credit (650k balance)

Bank is demanding line of credit balance to be lower than 50%

Business isn't great, we were unable to show any real profits to satisfy the bank.  I have pitched the idea of just refinancing in the amount of the first and second mortgage to at least get the bank off our backs and lower the monthly payment. But I would like to come up with a strategy to help the business grow and stay afloat. It is a family business, and although I don't plan on staying much longer, I would like to offer my help in the Real Estate end of things.

My entrepreneur mind is thinking me and my brother buy the building to give the company the most equity in the property, since it would never sell for 2mil. We take out a construction loan and renovate the first floor into apartments while continuing the manufacturing on the other two floors. It would be interest only payments for 12 months and we would have the benefit of fixing the building up.

Does anybody else have any thoughts? Keep in mind this is a 160k sqft building.

[Joseph Cacciapaglia]

You said the value is $2MM, but it wouldn't sell for that amount. How does that work? What do you think the value is on the open market? That's the first thing you need to be sure of, before you can get too creative. Even if you're willing to pay $2MM, if that's not an arm's length transaction, you may not get financing for that purchase. What type of manufacturing is going on in the building? Is it something that would bother residential tenants below? Have you explored just leasing out the first floor as commercial space for additional income? What's the highest and best use of the building? Would it make more sense as a complete apartment conversion, and then the business could rent elsewhere? Have you considered creating a "maker space" or even coworking space on the first floor? I've seen some manufacturing companies do this with their unused space with varying degrees of success.