I need help structuring a project

[Joe Wortham]

Good morning BP,

I am looking for some advice or direction on how to structure a deal. I want to buy and develop a small commercial lot. The property has been listed for some time now. After a conversation with the sellers agent I believe there is interest to do a joint venture.

My plan is to use SBA 504 loan for the real estate purchase and development. However, the lender does require approximately 30% down. I believe I can get the seller to finance/ seller carry the 30%.

If I can achieve this 30% are there any suggestions on how to structure the next phase moving forward?

Much appreciated, thank you!

[Henry Clark]

SBA:

a.  Check if the SBA 504 investment qualifies first.  Its my understanding your project has to be 51% owner occupied.  We had to subdivide raw land off from an SBA 7 project, so we can do Contractor bays, which we will not be 51% of the user space.

b.  Check on the SBA 30% down payment.  They can go down to 10%.  Find out why 30% and see if there is another SBA provider who will go down to 10%.

c.  SBA is taking a long time right now.  About 75% of their workforce has been moved to handle PPP filings.  Business filings are on the back burner.  You might need to put an "redeemable" Earnest money deposit down to hold the deal while you are doing due diligence and also "subject to" SBA financing.

Deal Structure:

I may be reading this wrong, so disregard if needed.  Make sure there is enough Meat on the bone (small commercial lot) to go through with this, otherwise a good learning experience.

-Either the seller will be the SBA loan applicant and contribute 30% of the property as collateral? Which means you are a co-borrower and tied to this person's other debt loads, from a cash needs basis? Or you set up a JV or LLC and transfer the property to it, and the JV/LLC is the SBA applicant?

-Or they are going to contribute 30% collateral in cash (probably not).

- Make sure you both have the same endgame and timeline if you get the current owner involved.  Define and document an "Out" strategy for both of you.

- Last year due to Covid the SBA was covering 6 months of their interest payments. If this is still happening make sure how and who gets credit for this. This should just be another covenant in the overall JV.

- Do due diligence on the property owner.

Go get them.  I love Developing properties.