Constructing a new Mixed-Use building

[Rhett Kelton]

I'm looking to see what positives and negatives you can see in this project.
(From the lawyer: This is NOT a solicitation for funds. We are set up as a 506(b) corporation)

I purchased a FSBO in a up and coming neighborhood close to downtown Murfreesboro (TN) , and called to inquire. I had the intention to do a fix/flip. After talking to several people about the project, a couple recommended doing a teardown and building townhouses. (It had been a meth house before. It did get remediated, but....) After talking to more people, the idea of building a mixed use building started gaining traction. We went through the process of rezoning, getting approval from the city, getting the architect, builder and engineers on board, and getting the lawyers to get the correct paperwork. This is my first mixed-use build and syndication, so I have tried to get the best people around me. I know I either have or will make some mistakes.

We are planning on doing a 3 story building, about 13,800 total sq/ft, with the 1st floor commercial and the top 2 floors being 1/1 condo's. It should be about a 2.9m deal, with 2.1m financed through a local bank. I feel like the numbers in the model are fairly conservative- I have included a 7% hard cost contingency, and then $100k set aside in for unknown soft cost reserves. The way the numbers in the model work out, after selling the residential units, we should have little to no bank debt, thus leaving the corporation in sole ownership of the commercial floor. This ends up with about a 18% IRR and a cash multiple of 2.1, with the hold time being 7 years. We have it split up as a 70/30 split, LP/GP.

I do have 3 main thoughts.
A.  Do you thing the commercial will be able to thrive in this economy?  The planning commission is limiting the commercial we could put in- no vape shops, adult bookstores, etc...  We are in Murfreesboro, within the strong greater Nashville market, so I am not concerned at all about the residential selling.  I might not even pre-sell because of the local appreciation (thoughts though?).

B.  Should I plan on refinancing into longer term debt after construction to pull money out for the investors, if possible?

C.  For those that have done these before, do you have any recommendations about getting a cosigner for the loan?  The bank says I don't have strong enough personal finances, and I have found it fairly hard to get someone to cosign a loan for that amount of money.  Right now I am offering about 3.5% of the total loan amount for cosigning the 18 month construction loan.

Thanks for your thoughts.

[AJ Shepard]

@Rhett Kelton

Have you looked for developers in the area that would want to partner on it? Or, maybe you sell them the land and then take some of the upside in the project? Offer to work for free or little to get the experience?