Purchase a percentage of commercial real estate

Commercial Real Estate Investing
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Purchase a percentage of commercial real estate

Tzook Bar Noy
Rental Property Investor · boca raton, FL · Member since 2015 · 43 posts · 20 votes

Quick question on purchasing a part of a property.

- We have a property owned by 3 partners, with NO debt, property value 3M

- one of the partners wants to sell his 33% for 1M

- I want to buy his part in the price of 1M

- but I will surely use debt, so that means that bank would like to have my part of the property

- the other two partners  who dont have debt now will have the bank partnering with them with me.

How does this kind of sale happen?

I know there are sales of percentage in the commercial properties, but just cant get my head around the mortgage side.

Thanks!

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Joel OwensBusiness Member
Moderator
Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
9y

There are companies that do these buyouts all the time. They DO NOT,DO NOT pay full value of the partners share. They buy with cash at a discount.

The partners likely have an operating agreement that states what a partner is allowed to do and not to do when selling off their shares. It might also need partner approval and the partners might have a ROFR to have first dibs buying the interest at a set price etc.

The fact you want to buy the partners share but get a lender involved is likely a non-starter for the other partners. If it's paid off then likely they are debt adverse. Crazier things have happened but just seems like a long shot that the existing partners will want to be put through the wringer with some unknown lender just so a partner cal sell off their shares.    

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  • Timothy Maloney
    Lender · Syracuse, NY · Member since 2016 · 165 posts · 92 votes
    9y

    @Tzook Bar Noy - Well, it is possible.   However, your new partners may take pause with this strategy as this will require a 1st position lien on *their 66.6% of the property, and a deep dive into their financials.    Most respectable commercial lenders/mezz/bridge guys wouldn't blindly fund a minority position in a property without knowing everything about the partnership.     At 1MM loan amount at least you are close to large enough to get a lender to want to "get creative" with you.    Good luck!

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  • Tzook Bar Noy
    OP
    Rental Property Investor · boca raton, FL · Member since 2015 · 43 posts · 20 votes
    9y

    thanks @Timothy Maloney

    So does smaller deals happen frequently?

    As I understand 50% of commercial roper ties are owned by several partners...

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  • Timothy Maloney
    Lender · Syracuse, NY · Member since 2016 · 165 posts · 92 votes
    9y

    @Tzook Bar Noy  No, smaller deals would have only a slight chance of getting a lender to want to get creative.    The smaller deals either fit in the lender's box or they are declined.   At $1MM you are entering the territory where a lender will make CUSTOM loan provisions, documents, and contract language.     Yes, most large commercial properties have multiple investors - it is very common.   What is uncommon is the scenario you've described.   

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  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    9y

    There are companies that do these buyouts all the time. They DO NOT,DO NOT pay full value of the partners share. They buy with cash at a discount.

    The partners likely have an operating agreement that states what a partner is allowed to do and not to do when selling off their shares. It might also need partner approval and the partners might have a ROFR to have first dibs buying the interest at a set price etc.

    The fact you want to buy the partners share but get a lender involved is likely a non-starter for the other partners. If it's paid off then likely they are debt adverse. Crazier things have happened but just seems like a long shot that the existing partners will want to be put through the wringer with some unknown lender just so a partner cal sell off their shares.    

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  • David Miller
    Attorney · Durham, NC · Member since 2016 · 224 posts · 126 votes
    9y

    You are not purchasing real estate.  You are purchasing a partnership interest - which is personal property.  @Joel Owens is 100% correct that you do not pay full value.  You are taking a minority ownership position in a privately held entity where there is no public marketplace to sell the asset.  The lack of control and lack of marketability equates to a discount on the purchase price - how much of a discount depends on a lot of factors and what price is negotiated.  The operating agreement needs to be your starting point on how to purchase the ownership interest, but the bigger problem is convincing the remaining partners who have no debt to pledge their entity's asset as collateral for your debt.       

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