All Forum Posts by: Bob Faulis

Entry 7:  Wow, this is all getting really interesting. I wish I had time to write about it.  I might just need to turn it into a book.  Just a quick look in to progress:

Offers in from Four BIG equity partners to fund it- everyone wants a piece.   My partners are comparing for the best deal.  Sell Side is starting to communicate more after being offended by the "Black and White" slap of reality one Partner gave. I tend to negotiate a little softer.  I stepped back in and built up relationships again.  These deals are all walking the line between blowup and success.

It is an emotional roller coaster- even when it is going well.  I will have to fill in the details in a bit. I find it very interesting even for myself who has been in big distressed deals bak in 2009.

Stay tuned.

Bob

Diary Entry 6:  I will surely keep you informed Mike & Ben. Sorry to go quiet for a day or two- a lot going on.  We are in the pool, or should I say ocean.  We have our fifth offer to fund tomorrow.  We turned down the first of the offers yesterday because they wanted too much back end.  It looks like the best deal comes in at $154,000,000 with 50% back end and we keep 2% finders fee (didn't even figure that would be available when you are developing the front end. I am guessing it might be paid to help pay off the facilitators that helped put the deal together.)  

At this level, the smaller percentages don't matter I guess.  These deals don't typically go through real estate brokers, usually attorneys all the way.  The seller is insisting that he pay a 5% brokerage fee despite having a contracted option to cancel the commission under the current situation.  So, I am going in with my brokerage and picking up the 2.5% buy-side by presenting the offer though neither of us will need to do any work on the official BRE side.  Anyway, my partners with the experience and contacts in this arena said I could keep the entire 2.5% if it is paid. Pretty nice.

Finding the right property and providing above and beyond in an extra hairy deal and then moving it to a strategy for success opens the doors.  I guess the other important thing is to build a relationship with the right people who already have the top-level relationships. I think in most cases that means hanging out at the golf course, the societal clubs, and service organizations where the old dogs hang out.  They are a wonderful resource.

Another interesting thing is the manner in which the deal moves forward at this level.  They are slow and methodical and not rushed by the chance of losing the deal.  That means the facilitator of the deal (I prefer that term over "Broker" because of the negative connotations that the terms brings to the investors.)  They take their time with due diligence questions, slowly nibbling away at the hair on the deal, hair by hair.  Then if the deal is still standing and all  solutions identified for each issue; they move forward- still slow to finalize.  We are covering two days and five offers but still ignoring the seller.  Not many are likely to take the deal because they don't have the info I worked hard to discover.

My guess is that the offer goes in today after our 11am meeting with the last equity partner. It will be a basic LOI to all parties. I am also looking to present to the Bankruptcy court (good if you read up on the laws and procedures for Chapter 11- many of these deals occur in the BK courts. The big ones in 11, smaller multi-properties in 7.). It looks like we can submit a response tot he amended reorganization plan even though a 3rd party without standing.

So the way things flow generally, principles workout the deal in LOI, then a chat, and then a final writeup of basic terms, and then turn it to the legal guys to commemorate. On lower levels, the deal is often driven by attorneys. At this level, I am finding that the lawyers do what the principals request- they have as much knowledge of the law for basic structure as the attorneys.

Speaking of lawyers, I took my step to put my legal structure and team in order. I personally setup my LLC, expedited through Sierra Express out of Sacrament. I ordered at 1:30pm and my docs were filed by 3pm. I will have my state entity number by tomorrow afternoon and the hard copy certified version by Saturday- and super simple. I literally was done in 10 minutes from filling form to confirmation call. Well maybe 8 minutes.

Back to the lawyers. It is important to have legal review of paperwork so that the structure lends well to your personal financial needs. I met with several special counsel attorneys for several areas of law with DuaneMorris, San Diego.  Very impressive and great service.  I never filled a room with attorneys so quickly- a little bit of a joke. I had two and setup with the third who was still in meeting.  But that is expected since I only requested a meeting an hour earlier.

Well, that is enough for now.  So, today hopefully the offer is out to all parties - Monday at the latest.  And attorney communications another day or two.....close Thrusday? Friday?  Don't know, it is always up to God in the end.  You never know a deal is done until your portion is in the bank.

Good luck

Bob 

Diary entry 5:  Approaching the deadline.  This weekend I am polishing up the presentation for my Tuesday Meeting for final funding on the project.  It is so important to digest all the facts, strategies, opinions you can into a document that allows clear and concise understanding by the capital partner.  It truly takes a team to put such a document together but I am the only one with the skill set to do so.

It is progressing well. I am taking a break for the update for you all that read. Perhaps  I will make it available someday for review by a select few so that they may incorporate some of the layout, ideas, and features needed to get a bigger deal consummated. 

Thank you Justin....beer is on me someday as I fill in the details (if I close) since you are a neighbor.  Karen, you may drive down as well.  It might be a fun discussion.  Perhaps if it doesn't close (NOT), one of you might buy me a beer (to cry in).  LOL  

Wish me luck and for those who really want to help- pray to God for favor because in the end it is all up to him.

Bob

Diary Entry 4:  I do hope this is entertaining someone.  I will say that if I am the only one reading the ongoing saga, it still is cathartic to be able to vent the emotions on this forum.

Keep in mind when working a deal that each deal has its own life blood, ebb and flow.  You can't really push them too hard but must gently move them along without being pushing and offending the money players.  You need slight pressure and sly strategy.

I can't ever say the exact reason, but the equity partners jumped back in.  I don't know if it was just their digestion of the deal or my seeking to bring in other acquisition money, but they did commit verbally to funding the acquisition with a meeting on Tuesday to finalize.

The backend commitment was always there but it was the $10MM acquisition that was hesitant.  With every deal it takes walking that line between losing it and making it happen.  

An interesting situation did come up that may be a learning point for some.  A long standing project manager that I had befriended in the deal has been instrumental in developing better communications with the lender.  As with every distressed property, the blood in the water brings around all kinds of puffer fish trying to look like sharks.  Sadly this burns our sellers with too many false buyers that never perform.

My building of relationship with the project manager has gotten me standing above others.   Though committed to not talking to another "buyer" until money is in hand, I finally worked my way to his attention and communication.

As a result, the seller has dropped his price   without our further pressure.  Now that may sound good, as the project manager also thought.  The project manger instantly called the capital partner to tell the "good news."  Well, that is a dangerous thing. Timing and strategy i everything. I don't think it hurt the deal, but it could.

Having the seller drop price without working for it can scare a buyer that he is either leaving money on the table or some new problem has arisen that has motivated the seller. The fear from the capital source could be, ?"Why would he drop price, What don't I know??

This might be information better presented laters as part of ongoing negotiations. I will smooth over any issues it could cause.

Well those are some thoughts for your input. Today   I now provide full property history, structure and hair.  Then this weekend I put the project plan together for the first $3MM to start the project.  I hope that our meeting finalizes on Tues. and closes on Friday..... from my mouth to God's ears.

Keep up the battle,

Bob

Diary Entry 3:    Closing a deal often takes creative strategies.  Now that I have conversation flowing again, I took a look at the positions of the parties.  The seller (lender) wants quick immediate close- who doesn't.  All due diligence has been done and the one title issue that remains needs final cleanup.  Chances are that cleanup will occur within a week or two.  When it does, the property value goes back up to $20MM++.

The equity capital partner is chomping for the deal but only wants the deal if all goes through immediately and cleanly.  The lender doesn't want to tie up the property with any contingencies. SO won't accept a subject to clear title.  The lender is being pressured by the investor group to take the profits and run but the fund manager wants to hold out the few weeks to a month to get clear title and double their money (all have been in the deal for a LONG TIME).

SO I now put together a structure where a backup acquisition source places and LOI with proof of funds to take assignment of the LLC holding the property should the title clear take longer than the expected two weeks to a month. This gives my second acquisition source time to fund the $10MM. If this transaction occurs the 2nd funding source agrees to give first right of refusal to my equity source to purchase the property back at say $11.5MM- if it takes two months, three months, up to say a max of 8 mos. After that the 2nd source will get title clear and can go sell it for what ever price it brings.

This seems like a solution... any input on my strategy,.. any refinements. Now I just have to find that 2nd source.  Pray.

Thanks

Bob

Diary Entry 2:  Back at the table with acquisition money.  I did get movement from lender that allowed some conversation.  Now I just need to manage the acquisition money's feelings.  

Unfortunately emotions often get in the way of these and any deals. One must remain neutral and open to outcome.  As the strategist in putting together deals you must concern yourself with 1) end goals of all parties  2) experience and skill of all parties  3) the fears of all parties  4) the emotional condition of all parties 5) The risk acceptance of all parties 6) the comfort level of all parties and 6) your strength of relationship with all parties. The feelings of greed, pride, feeling offended, and anger. 

So at this point, I deal with people and emotions to close.

Bob Faulis

Thanks Bill, I will let you know.  I have worked on deals this size and truly they are all that big.  Just look around, everywhere in America there are $100MiM, $500MM, $2 Billion construction deals. They just tend to be put together quietly behind the walls of the equity partners such as the one we aligned.  I have had the blessing of being behind those walls in the past in a small roll but have seen how they work.  It is fun to see and more fun to realize they are much the same as the hundreds of residential homes I have worked on.

George, if you like I could come over to help find your wallet but it will cost you some points on the back end. LOL.  it is good to keep it fun and not so serious and desperate.    If it doesn't come together, it won't be the first dollar I didn't make nor the last dollar I won't make.  There will always be more dollars available in other ways on other days. It is all about suiting up and playing the game each day till your hard work and intelligent choices brings the money for your cup of Starbucks.

Steve, It is most common that the equity build out does not fund the acquisition.  They like to see more skin in the game by the development team.  Part of the issue in this case might also be the team member who has the lifetime relationship with the equity partner's organization. It seems he does not want to look badly if he doesn't bring forth a perfect deal.  Surprisingly, he has done many big deals around the world so I am partly attributing this to his maturing and lower desire for risk- even if it is just for a relationship. He just doesn't want to ask because he is working 4 other deals currently with them. So maybe it is bandwidth, maybe satiation-- he just isn't as driven as the rest.   We will find solution.

Yes Bill, it is very often the case as you describe. What drives the success of this deal is the equity partner that is in line that will recapitalize the seed money.  They have done all due diligence and I have their materials- thus shortening the research time. I literally have everything on this deal.

Also, it is a very very unique deal with the full entitlements, full plans, development to being in weeks with the tear down that will lock in entitlements.  The ongoing cash flow from the property enables a carry even if all fails. There is legal team review, and some other sweet items.

I am normally the negative guy and having worked in distressed real estate for 10 years, I have a pretty good understanding of deal structure. But it always comes down to finding the right investor that will go for any deal no matter how good it is.  I can't tell you how many "great deals" i had that were just 500+ miles out of the investor's sweet spot.  I tried moving the property and that didn't work either. LOL.

I hope to be back to encourage the dreamers with one "big whale" that didn't get away. Sooner or later, this property will have to be developed- it is 60 years over due and in high demand by the city to be cleaned up.

I will just keep praying to God for that one miracle.

Bob

no it is down in san diego in my area where I live.