38 Unit + 3 Acres Financing

5 Replies

I have a deal question - quick scenario.  Have an opportunity for a 38 unit prop that has 3+ acres for further development, which has received all approvals and rights to add an additional 28 units.  There is a private lender in place that has agreed to a second position at 5%, interest only and wants to keep that funding in place for another 10 years.  We need about another $2.25M for purchase and light rehab.  We expect to have a long term lease committment (5-7 yrs) for the entire complex prior to purchase.  

Our challenge is the financing. We cannot show reserves or sufficient assets, other than the property. Total expected appraisal value is about $4.4M. So we are looking for first position funding that is just over 50% LTV. We expect to secure long term financing within 18 months. Is it reasonable to expect to find a funding source in this situation? It is a fantastic property with great income, we just dont have much to start. Any ideas or guidance is appreciated.

@Rob Dahlager ...it sounds like you have a solid deal, but if you're basically expecting 100% LTC financing between a 1st position and 2nd position loan, it's likely not going to happen, no matter how good the deal is.  Lenders want skin in the game when doing value-add deals, even if they are lending at high leverage.  You can get away with less reserves/assets, b/c that can be accounted for on the private side.  If I'm misreading, please let me know or PM.  

If you guys are bringing in funds, this deal just needs to be in front of the right lender.  How are you obtaining long term lease commitments on the whole complex?  Is the long term leases also good for the other units to be developed?  Will these leases be at market rents?  Let me know.

@Jared Rine ... I do not see a way to PM with the app so here are a few more details. How much skin do private or hard money lenders look for on a deal like this?

We don't have much cash, but the financials show if we continued to operate as it is, it would have a 10-15k per month NOI, including 2.1M @10% interest only. The lease commitment we are working to secure would take that NOI to nearly $60k/mo. The numbers do not include any development or income from the vacant land - we would determine best use after the first year. Our idea is to find financing to get in and then get permanent financing in place in 12-18 mos.

We have a friend who led us to a business that needs housing. They currently rent houses around the town and are limited in how fast they can grow. This deal would give them the capacity to immediately more than double, with the ability to develop the land and more than triple their capabilities. We are meeting with them and with the city in the coming week to solidify committments. It also solves a problem for the city, so a true win, win, win if we can pull it together.

@Rob Dahlager

I would second Jared opinions in that most lenders either private or banks want skin in the game as that is the best way to align everyone’s interests. It’s going to be difficult (but not impossible to get 100% LTC).

Curious on the lease commitment,is it a non profit? What type of rents/rent increases are they offering? If it’s low income Rentors you might be able to find some 4% tax exempt bond money? There are a lot of requirements and paperwork but it could solve the funding issue if it qualifies.

Must be impressive apartments. If your going to pay $20k/month in interest plus utilities, Managment fees, repairs and maintenance and still generate $6ok/mo net income on 38 units? $2,800/mo rent each? Maybe more?

If your plans involve $720k/year net income on $2.1million with the interest you should be able to find some takers for a 3 year loan. Especially since it will sky rocket to almost a million a year net income on 38 units after the loan is paid off. Again, huge rent, ocean front?

Maybe find out if the 3 acres has any value and find a separate cash buyer for it. And bang, there’s your downpayment. 

Originally posted by @Rob Dahlager :

I have a deal question - quick scenario.  Have an opportunity for a 38 unit prop that has 3+ acres for further development, which has received all approvals and rights to add an additional 28 units.  There is a private lender in place that has agreed to a second position at 5%, interest only and wants to keep that funding in place for another 10 years.  We need about another $2.25M for purchase and light rehab.  We expect to have a long term lease committment (5-7 yrs) for the entire complex prior to purchase.  

Our challenge is the financing. We cannot show reserves or sufficient assets, other than the property. Total expected appraisal value is about $4.4M. So we are looking for first position funding that is just over 50% LTV. We expect to secure long term financing within 18 months. Is it reasonable to expect to find a funding source in this situation? It is a fantastic property with great income, we just dont have much to start. Any ideas or guidance is appreciated.

 After reviewing your numbers and the trail you're trying to blaze, I would try to make this into a joint venture with a money partner who can make sure the property has the value you say and who has money for a down payment.