$5,000,000 - What would you do?

Tampa, Florida
Commercial Real Estate Investing
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$5,000,000 - What would you do?

Scott Cash
Member since 2020 · 4 posts · 1 vote

I'm part of a three-member LLC that owns a $10M commercial property outright (each holding 33.3%). One member wants to be bought out and the other two want to develop new commercial product. I figure we have around 5M equity we can borrow against after 70% ltv and buying out the other member. With a blank slate, what would you do?

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Ronald RohdePro Member
Attorney · Dallas, TX · Member since 2016 · 5k+ posts · 2k+ votes
1y

This is really a lot of information packed into a densely worded post.

Yes, you can use loan proceeds to buy out another member, but it doesn't seem like you'll have enough to buy out and develop. Cash in from other members seems required.

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  • Henry ClarkPro Member
    Developer · Member since 2020 · 4k+ posts · 4k+ votes
    1y

    1. What is both your current and proposed LTV%? a. "owned outright"- do the members have personal debt to support this, or is it both zero for personal and for the business?, b. Not sure what is meant by "After 70% ltv". Will the lender require 25% down, or will they allow cross collateralization with your existing equity positions?

    2.  What are the terms/status on your current lessees?

    3.  What is status of capex on the building?

    4.  What is the cash flow after adjusted P/I?  

    5.  Are there any Depreciation recapture or capital gain Tax dispositions that need to be resolved with the exiting member?

    6.  Tampa Florida in your tag line.  Any impending Insurance coverage or increases?

    7.  How valuable is this location in that market?  A/B/C market.  

    8.  If current lessees move out, how much T/I needs to be done even before a new tenant?

    9. What does your LLC Operating agreement say about dispositions? Anyone in the middle of a divorce?

    10. What is the value as of today, if placed on the market, subject to sales commissions, capital gain taxes, Depreciation recapture, etc. How is the $10mm valuation determined. His exit value should be adjusted for those. Is this written in the LLC operating agreement on how to value. If not, take this moment to adjust, including in case of divorce, mental/physical health, etc. Have a well laid Exit path in the Operating agreement.

    11.  What is your view of the Economic World?

    Would have to view the property and understand the inherent tenant businesses.  Etc etc.  Don't need/want answers to any of the above.  Just thoughts that jumped out.

    If they want I out, I would definitely help them get out.

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  • Ronald RohdePro Member
    Attorney · Dallas, TX · Member since 2016 · 5k+ posts · 2k+ votes
    1y

    This is really a lot of information packed into a densely worded post.

    Yes, you can use loan proceeds to buy out another member, but it doesn't seem like you'll have enough to buy out and develop. Cash in from other members seems required.

    1Reply
  • AJ WongBusiness Member
    Real Estate Broker · Oregon & California Coast · Member since 2022 · 822 posts · 695 votes
    1y
    Quote from @Scott Cash:

    I'm part of a three-member LLC that owns a $10M commercial property outright (each holding 33.3%). One member wants to be bought out and the other two want to develop new commercial product. I figure we have around 5M equity we can borrow against after 70% ltv and buying out the other member. With a blank slate, what would you do?


     We recently helped a client with a large $20M+ cash out refi on a multi use property in Delray Beach. Happy to discuss lending options in detail. Cheers. 

    541-800-0455
    Sesemi | STR Brokers powered by Fathom Realty 516 Reviews
    WebsiteView Page
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  • Robert EllisBusiness Member
    Developer · Miami, FL · Member since 2014 · 3k+ posts · 1k+ votes
    1y
    Quote from @Scott Cash:

    I'm part of a three-member LLC that owns a $10M commercial property outright (each holding 33.3%). One member wants to be bought out and the other two want to develop new commercial product. I figure we have around 5M equity we can borrow against after 70% ltv and buying out the other member. With a blank slate, what would you do?


     what's the commercial property? I wouldn't take that money to buy him out I'd liquidate and move into better asset class like extended stay development or 3 story walk up apartments 

    [email protected]786-494-6766
    Section 8 Launch52 Reviews
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  • Jason Dillard
    Real Estate Broker · Greer, SC · Member since 2013 · 548 posts · 271 votes
    1y

    Buy out partner with Paper.  Don't leverage your property with a bank.  Use your equity without a bank  to get your next deal done. 

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  • Alecia LovelessPro Member
    Member since 2019 · 3k+ posts · 2k+ votes
    1y

    @Scott Cash Hopefully you have an exit clause in your LLC documents that lays out what will happen if one or more members wants to exit the deal.

    If it were me I would only leverage enough to buy out the member leaving you with a 50/50 partnership. If there’s no exit clause I’d take this opportunity to add one.

    Then I’d use the cash flow to leverage future deals. I know this is a slower process than you might like but $3.3M in debt is a lot for most people. I think if you leverage 70% of it you’re going to seriously cut into your cash flow and personally if I was going to have $7M in debt I’d prefer it to be spread over several projects built slowly.

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