Commercial- Buy the property and the business

[Bill Gulley]

Well, closing is set off again on a deal we have been working on for almost three months now. There should be no problems since it's just an insurance assignment to be completed, anyway my son came across a wharehouse/office complex in Ft. Worth, one heck of a deal!

The property was placed in receivership from a divorce case and an order was made to sell it. The property was appraised and it came in below the mortgage blance, making it a short sale of sorts. The owner getting divorced occupies about 2,000 sq ft in one unit. SInce the SBA is involved, the buyer must occupy at least 51% which means the owner has to move out! The three other tenants remain in place of about 18,000 sq ft. So, the challange was how to take 51% of the building. The seller wanted to stay in business, but can't occupy the space and looked like he would have to move and my son would have about 1,000 sq ft that wouldn't be useable for some time. What to do?

When I spoke to the seller it seemed he was willing to sell the business and just become a jobber. His business is a complimentary business to that of my sons' operations. So it was obvious, offer to buy out the sellers' business together with the building! So, how do we do this and make sure we don't spend real money for it?

We agreed to buy the business on an installment contract and then have the seller manage that side of the house. The business assets would go to a new LLC and would be sold to our operating business, not the real estate holding company.

Then, the seller is hired to manage the new LLC operations, so he can sit at his old desk. Since the seller sold his assets, printing equipment, he can lease back the use of the equipment on a per job basis and operate as a broker/jobber for the company. So he pays us to use the equipment we purchased from him. This is very much like a sale-lease back, but it's more like a sale-lease back, jobber/sales arrangement. The seller gets to rent the equipment back for jobs that he finds as a jobber, he receives a commission on jobs that run through as new company business as well as selling products sold by my sons' business and the lease payments made by the jobber for the equipment are scheduled to credit the installment purchase as well!

This solves the problem of taking and utilizing the extra space and the occupancy requirement, it allows the seller to earn a living, keeps all the other tenants in place and we acquire the real estate and, the bank get's what it has to have! That's a win-win-win-win!

Anyone have any suggestions as to structuring this deal for more wins? Tax wise, marketing or other related aspects?

Closing is set for Wed next week! Winding up the final touches! Thanks, Bill

[Bill Gulley]

Well, to say buy the business, maybe I should have said buy the business assets, since the sellers' LLC will remain in his name, didn't want that, but bought the equipment the existing accounts that will go to us. He will still have a business entity and his jobs will run through his business with rents due for the usage of the equipment. If he sells products to his old clients, his company will receive commsiions or premiums. All new customers will not be going to his company, but to the new LLC, we have a list of all old customers. The seller gets a commission on new business as well. The problem I see is that if the seller is to "manage" the aspects of the new LLC and new customers, looks like an employee, not an independent jobber, could run the new stuff through the sellers' company first and then sub-contract jobs as well. Sellers' business was/is a digital printing concern and my son is in promotional items.

In essence, we are buying the existing business accounts and equipment/inventory, not the name or the existing entity, easier that way.

The existing leases are being assigned to the RE holding company, as appropriate. There will be no lease with the seller for any office space, his company will be allowed to "come in" and run jobs from time to time and be charged. Those charges are credited to the installment contract we owe him, so in essenc, he can run jobs and pay for our purchase.

We informed the bank of the deal and they got lost and initially asked for the contract, since it could be a contingent liability, but as they got into it, they simply said "never mind" and it's out of their hands. Their borrower is the holding company wich will have a lease made by the operating company on premises.

Any suggestions? This is in the fine tuning stage...and anything that might help the seller out too is welcome as well.

A couple of other issues on the real estate side will be worthy of posting as SBA has changed some requirements, lenders aren't aware of them, and how the CDC in Texas is operating will be of interest to commercial real estate shakers! For example, SBA 504 are for businesses on premises, not investors, but you can partner with businesses as an investor and utilize this 90% funding! Later, Bill