I am interested to know the strategy to buy +60% of controlling shares of Co-Op building in order to convert it into rental units, has anyone been involved in this kind of deal? My concern is that what if the existing shareholders don't want to sell the shares, then, will they become a partner in the deal or just continue owning the shares equivalent to the apt sq ?Thanks,
That’s going to be very challenging unless there is an existing sponsor that already owns 60% of the building. The problem is once you own more than 10% of the building conventional lenders have an issue lending in the building so the board and existing shareholders will have a problem selling/refinancing their loans. This will likely lead to you being blocked by the Co-op board from purchasing any additional units due to the fact that turning the Co-op into a rental building will devalue everyone else’s units. Not to mention that conventional lenders also want 51% of th building owner occupied as well. As such, I see it getting more and more difficult as you try and obtain more units as more and more issues will come up.
Thanks Morris for your the quick reply, let's leave the financing aside assuming the new investor has 100% of capital to purchase +51% or 100% of shares. Scenario 1: Board & Existing Shareholders give the 'Green" light to go ahead with the offering, and the new investor only achieve 60% of shares being acquired then 40% of existing shareholder (apt owner) will not sell. What's the new responsibility of the investors toward the 40%? Will the capital improvement benefit the entire building as a whole? What disadvantages will the 40% of shareholders have at this setup? Will the remaining shareholders be treated as a minority owner of building or just simple as another pool of tenants? I am more interested to know the operational and legal ramifications of this set up though if this model is successful to improve the cash-flow and the value of the building in min 5-year time frame.
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