Using a pre-paid lease to fund constrction?

[Michael Wagner]

Wondering if anyone can offer some insight on this? Ever seen something like this?

I own a self storage facility and am looking for a way to expand again as demand is high. I am looking to do this creatively as my current mortgage has a prepayment penalty for the next 18 months that I would like to avoid paying.

So here's the plan:

I have a customer who is willing to provide me with the 100K I need to put up my new building. We have agreed that 10% is a fair return and I will pay him back in full 18-24 months (when i can refi without penalty). Obviously he would prefer something more 'secure' than a second mortgage in case default were to occur (which we both acknowledge is highly unlikely). To address this I have proposed that we structure this "loan" such that his payment to me is considered pre-payment for a 25 year lease. Essentially he gives me 100K and earns interest in the form of free rent until the time at which i "buy-back" the lease for 100K. This way his lease would survive a foreclosure and he would retain his rights as lessee for 25 years to offset the 100k (250,000K in rent value). Or, he could always try to sell his lease to the foreclsoing bank so that they could better market it for resale. I'm Hoping folks have some insight on this concept. feel free to poke holes.

Thanks,

Mike