Even during virus, apartment buyers looking for deals in Texas

[Rich Weese]

Financing changes caused my buyer to walk away one week before closing. Lender cut $1 million from loan amount and required 12 months PI TI totaling over $700,000 to be held in reserve. I was concerned with the coronavirus and lending changes that the market may become tepid. It hasn't been the case but the prices being offered are approximately 10% less. I've been lucky in the occupancy and the T – 12 have remained very constant so far.

Here is a question for BP. Are lenders allowing the seller to carry secondary financing on Fannie Mae or Freddie Mac loans question one of the potential buyers is asking me to carry 10% of the sales price which I assume is making up for the 10% reduction he is receiving from his potential lender. I know I did this a lot 40 years ago but haven't heard much about secondary financing on commercial lately.  Please share if you have done this.

[Nick B.]

70% is the loan ($7M)
The buyer brings in another $2M cash
The seller brings $1M of equity he already has in the property.

Yes, this equity is essentially a second mortgage but under a different name. The terms of this equity should be included in PSA. The buyer should treat it as a second mortgage in terms of payments and return of principal. Buyer's operating agreement should have provisions of paying preferred interest first and paying off preferred equity balance at certain time. If the buyer defaults, the pref equity holder should be able to regain control of the property or force the buyer to pay.

This is how some institutional investors get into syndicated deals: they provide second mortgage but call it "preferred equity" with terms similar to those if a mortgage.