Ideas for a MFR restructuring?

[Jonathan M.]

Hi -

Looking for some ideas on structuring a MFR workout situation. Basically, the current owner is underwater and will take a haircut but is not willing to walk away completely.

My group recently complete a renovation of a nearby 12 unit complex of substantially identical units in January, so the renovation costs / NOI are actuals based on per unit basis. Demand will be strong at this price point as the competition will be significantly inferior quality.

24 unit complex (4 buildings x 6 - 1br units) built c.1978 - end of life interior but exterior structure / mechanicals appears sound.
NOI forecast at 83k.
Renovation budget at $375k inc contingency
Purchase price of $250k

Our Bank will go to $565k @ c.4.25% for 5 years with 25 year amortization - they hold the note for the existing owner and know he is slipping into the default zone. That is putting debt service around $38k.

Based on the above, the owner will take a $60k loss now if we give keep him in the deal. We are bringing the capital, credit, experience - any ideas on how to give him some upside without giving away too much?

Without a deal, I believe the bank will be taking this property back within a year - so I could wait it out but I have capacity to do the deal now and it is a good opportunity.