All Forum Posts by: Christopher Dockins

Quote from @Gino Barbaro:

@Christopher Dockins

From what you've written, you need more than a mentor. You need a partner/person  who's done what you're trying to do.

Underwriting is the easy part. Building is the challenging part, especially if it's your first build. You could find a mentor to teach you underwriting/deal structure, but you're gonna need cash and experience to pull the job through

Sounds like a great project and you have a lot to offer to a potential partner. 

Thanks Geno. I know sometimes the advice you don't want to hear is the advice that's most needed, haha. Thanks for taking the time to reply, I'm going to start poking about what a JV/partnership might look like

Quote from @Stuart Udis:

@Christopher Dockins  As I understand your post, the lender is looking for an additional cash/equity contribution. I suspect somewhere in the 20-25% range of the total project costs? Since the existing building is only a 3 family dwelling it would make sense  more equity would be required for the 13 unit construction phase. 

You mentioned you do not want to reduce equity. Lenders generally don't want to see LP equity have the appearance of debt. From a lenders perspective the project will have the appearance its overleveraged and  lenders are generally more comfortable with the LP equity sharing in the economics of the underlying real estate. There are certainly ways you can structure your operating agreement that reads more like true equity with earn out clauses that allow for you to redeem the membership interest. I would just be careful not to make the agreement read  like you are paying a fixed rate for the LP participation. Depending on how long you hold your LP's equity you may be able to negotiate better terms  (A year +1 day from completion can sometimes get you LTCG tax treatment for your investors)  but speak with your CPA.

Another strategy to consider is leaning on imputed equity, if available. You mentioned this was originally a 3 family building and are now expecting approvals for an additional 13 units. This should increase the value of the land considerably. Not all banks are willing to treat imputed equity towards the borrowers cash consideration and  merely purchasing the property well or discounted will not fly but if you can show extended ownership or even better real value was created through entitlements some banks will treat some or all of the increased value as equity. Often times its a matter of how good of a story you have to tell. If its a  by-right project you will likely will receive less credit but let's say you had to go to battle with a neighborhood and come out victorious with your approvals, that's the type of narrative that can be used to your advantage. 

It's  a strategy I personally rely heavily on to reduce my equity requirements. One of my recently funded project was an auto assemblage with base zoning that would have allowed 6 single family homes. I worked with the community for well over a year going to countless meetings, multiple project revisions etc and ultimately obtained a variance to build 18 condos and 12 townhomes. The land's value increased by $1.1M and my construction lender was able to finance the construction at 86% LTC because of the imputed equity. Remember bank debt is generally the cheapest form of capital so I would start by seeing if there's a way to use imputed equity in lieu of investor capital

Stuart, thanks for the thoughtful insight. The 'imputed equity' piece is something I've identified but didn't yet have the term for. Lenders I've spoken with have taken different approaches to underwrite the deal and I hadn't fully understood the reason. Just shot you a DM as well, would be great to connect and keep in touch. Thanks!

Hi All! Here's a overview of what I've got in the works - would really appreciate any insight or advice you might have. Thanks for reading!

I own a triplex on a large lot in central phx with entitlements allowing for an additional 13 units to be built. I have CDs submitted to the city and expect to have approval by the end of year. I have a lender who's provided a commitment letter for the construction loan, however, I'll need to bring in cash to pay off first position on the triplex and off the construction lender (depending on financing and market conditions at time of perm loan). My goal is for this project to be a long term hold.

Recently I've been looking for different resources to find a service or mentor who can advise on the dialing in my proforma, and advise on deal structure if indeed I need to bring in cash (i.e. based on proforma how can I pay off investors without reducing equity).

Would love to hear how experienced investors think about this!

Thanks,

Chris

Hello, I'm looking to build 13 units and looking for advice on financing, feasibility, and deal structure. I've got a mortgage on a property in phoenix which currently sits a triplex and based on the entitlements can build 13 additional units. I have site plan approval from the City and moving into prelim design. Now looking to see if I am able to secure financing. I haven't done a ground up build before so financing with some institutions has proved to be not possible

Projected construction loan (incl. triplex loan) is 2.5m

I'm anticipating a 65% LTC and have about 50% of down payment in existing triplex property equity

Considering doing a GP/LP structure with friends and fam for remaining 50%. Goal is to refinance the construction to perm loan eventually, pay off all the LPs and hold the property long term.

Looking to move on this fast to maximize existing property appraisal and secure a rate that makes the project feasible.

Any recommendations or advice for deal structure, development landscape, and loan options is much appreciated!

Hello, I'm looking to build 13 units and looking for advice on financing and deal structure. I've got a mortgage on a property in phoenix which currently sits a triplex and based on the entitlements can build 13 additional units. I have site plan approval from the City and moving into prelim design. Now looking to see if I am able to secure financing. I haven't done a ground up build before so financing with some institutions has proved to be not possible

Projected construction loan (incl. triplex loan) is 2.5m

I'm anticipating a 65% LTC and have about 50% of down payment in existing triplex property equity

Considering doing a GP/LP structure with friends and fam for remaining 50%. Goal is to refinance the construction to perm loan eventually, pay off all the LPs and hold the property long term.

Looking to move on this fast to maximize existing property appraisal and secure a rate that makes the project feasible. 

Any recommendations or advice for deal structure and loan options is much appreciated!