All Forum Posts by: Christopher Brown

I have a stabilized self storage facility and the opportunity to buy the undeveloped adjoining lot.  The owner of the lot is the guy who developed my storage facility a few years ago.  It is not a public listing and there aren't any comps for this kind of land in my area.  How do I value it?  Will commercial brokers help out with that kind of valuation when it's not going to be a brokered transaction?  Do brokers do that kind of rough valuation for a flat fee rather than a commission?  Is there a role for a buyers broker on transactions where the seller isn't represented?  

I used Justin Tart at SelfHelp bank for my recent SBA 504.  He's great.

I closed a $6m self storage deal this summer.  These were our financing options:

• Because our property wasn't stabilized, none of the CMBS/insurance debt (which had great terms 6 months ago - 10yrs/<4%) was interested.
• I explored SBA and started a 504 application, because I believed our property would qualify and they are more welcoming of unstabilized deals.  I knew it was a long process with execution uncertainty and high fees so it wasn't my preference.  I shopped SBA lenders and got a commitment and started the process.
• I hoped to find a conventional loan from a local bank, which is often available for storage, and I had a deal in place (10yrs/4.5%, first year interest only with a reset at yr6) and then when COVID hit they bailed and offered to put us into their SBA program.  I had told them upfront that I was already working with another SBA lender as a backup option and so I declined that option from the local bank.
• At that time I explored bridge money options but they were way too expensive (2 or 3 yrs at ~7.5% IO with big fees and big reserve reqts).
  

We finally got our SBA approval.  It was a lot of hoops to jump through and there were lots of places the approval could have been declined (two bank underwritings plus the SBA approval).  Even AFTER we closed there were some hiccups in getting the SBA's final approval to take out the bank's interim debenture.  But at the end of the day it all came together, and we had a very patient seller (not surprising with COVID, I suppose - they didn't want our deal to fall through).  

Final SBA terms are for two loans:

• First loan with a partner bank: 30yrs, 1st yr IO at 2.75%, next five years at 4.25%, then a rate reset every 6 yrs at prime + 100pts.  
• Second loan is with the SBA: 25 yrs, I think their final rate was 2% (I haven't seen the paperwork on the Sept SBA closing yet).  
• So my blended rate is a hair over 3% and I'm locked in for the long term.  
• Oh, and for COVID reasons the SBA is paying the first 6 months of debt service on their piece and both banks are deferring months 7-9 til the end of the loan, so my debt service for the first year is cut by half.  

Really pleased and fortunate with how well it turned out.  I'm happy to share contacts at the different banks we worked with if anyone is interested - Bank Five Nine is the partner bank and Self Help is the CDC.

Anybody have any experience with the "small family business exclusion" on the FAFSA and commercial real estate? There are a few threads on the forums with good info but none dealing with commercial real estate business assets. My self storage business seems to meet most of the requirements for being excluded from my total assets - the business/real property is owned by a family-controlled pass-through LLC, has employees but fewer than 100, provides services in connection with its real estate holdings, and keeps separate bank accounts in the business name. But I state the income on my Schedule E, which I imagine many of us do. Others on this board must have dealt with this for actively-managed commercial real estate assets - hoping folks can share their approach or the guidance they've been given. @Dave Foster, you have any thoughts on this?

(I understand that the pass-through business income is obviously part of my total stated income for FAFSA purposes.  And I also know that many schools use a financial aid calculator that does NOT exclude small family business assets, so probably an academic exercise at the end of the day...)

Hi Paul. We are set to close on the storage place this Tuesday. Ended up being a no brainer with how things played out with the NNN deal.

So there were two issues for me. One, my broker and I agreed that we had no way to confidently price in the risk on the property. We discussed with the sellers a one-year escrow in the amount of the total rent due that would be used to pay any rent loss for non-payment. Not sure we would have gotten to an agreement on that. My broker had real concerns that one or all of the tenants would insist on renegotiating down the rent or they would walk, which his firm (Pegasus, which manages a lot of retail properties) was starting to see some of. I had real concerns about burning through my (not insignificant) reserves if we had long term rent loss or the space go dark and had to re-lease it in this market. And I have a couple of contacts on the institutional side in NNN (operators of REIT funds) who are dead stopped on the acquisition side and said they aren't doing QSR til they see how the market shakes out and thought I would be crazy to go forward on it. So while this deal was the better deal for me on paper (much better cash flow in the short term than the storage deal) and I was going to be sorry not to close on it, there just seemed to be too much uncertainty for me to pull the trigger.

Second, the sellers were really transparent with us about their negotiations with the tenants. Of the three - Caribou Coffee/Einsteins, Tijuana Flats, and a local Indian place - all three stopped paying rent in April and have not paid since. Caribou sent a "we're not paying rent" letter and no communication since. The landlord was able to negotiate a three-month extension to the lease for Tijuana Flats and for the Indian place with a commitment from both to begin rent payments in July, though remains to be seen whether either will do that. So that made things pretty clear cut: once we knew that there wasn't going to be any income coming in on the property through the end of June, it meant that securing financing was going be a real trick for us even if we wanted to move forward.  The local bank we'd been discussing this with said they would give us credit for rent as long as it started in July, but all parties would have had to cross their fingers that would actually happen with obvious downside of my 1031 failing if any of the three tenants didn't show up with July rent.

So the storage deal - which I said is a good deal - just made sense.  Financing blew up on that one too!  The local bank who we had a conventional commitment from backed out once covid arrived.  But we were able to secure an SBA 504 loan, which actually turned out to be a blessing: half of the loan is 2.75% 25-yr SBA money (with the first 6 months forgiven) and the other half is 4.25% 30-yr partner bank money (rate resetting every 5 yrs).  We'll have really attractive debt service terms for a really long time.  Happy to share more about my experience if anybody has questions...

I just got my approval from the SBA for 504 program financing for a self storage acquisition.  My local lender, from whom I have a commitment for the bank piece, doesn't do interest rate swaps, but they've got a rate floor of 4%.  The swap market is a bit more attractive than that right now and lots of yield upside if we get into an inflationary environment.  We're shopping for the best terms and I'm wondering if anyone has used a 504 lender for the first piece that will do a swap?

As I understand it, you are entitled to an extension only if your ID period was between April 1 and July 15.  Not sure what the interpretation will be for people who had already submitted their letters. 

Same with your 180-day window to close...

Looks like this was announced end-of-day yesterday. If your ID period or 180-day close period falls between April 15 and July 15, the deadline is tolled until July 15 (and I'd expect this to be extended again down the road but this is a good start):

https://firstexchange.com/IRSExtends1031Deadlines

https://www.irs.gov/pub/irs-drop/n-20-23.pdf

How do individual investors short CMBS? That'd basically be buying credit default swaps? Don't you have to find someone who wants to be long on CMBS to write the insurance premium? And aren't we talking about only institutional insurers on the other side, and big policies (in the $10-100mm range)?

There are the CMBX indexes that us little guys can trade. How do you short those? Still CDOs with the problem above? I guess there are binary exchange markets that retail traders can participate in too, but again, how would a retail trader buy a CEBO for a particular CMBX? And do those work for these kinds of market crises? I assume a lot of the sentiment that CMBS debt might fail is already priced in to those CEBOs?