Has anyone done a fully disclosed double closing on a high-cap multifamily deal?

Question

I’ve been thinking through a structure on some small multifamily deals and I’m curious whether anyone here has actually closed something similar.

Every once in a while I come across properties trading at a 12%–13% cap rate where the income supports a value materially higher than the negotiated purchase price.

The idea would be for my business partner to acquire the property first, then have our operating company purchase it from him in a second, fully disclosed closing at a higher price that is still supported by an independent appraisal and the actual NOI.

For example, the second purchase could potentially be structured with:

• DSCR/commercial senior financing based on the second transaction• Seller carry from my partner for the remaining portion• The appraisal supporting the second purchase price• Enough cash flow for the property to comfortably meet the lender’s DSCR requirements

The attraction is that, on a genuinely high-cap deal bought well below value, the senior financing plus seller carry could potentially cover most or all of the second acquisition without requiring a large additional cash contribution.

I’m not talking about hiding the first transaction, disguising the relationship between the parties, inflating an appraisal, or concealing the seller note. The lender, appraiser, title company and attorneys would know exactly what happened and who the parties are.

What I’m trying to understand is how lenders actually treat this in the real world.

Do they underwrite from the second purchase price or the original acquisition cost?

Is there normally a seasoning requirement before the second buyer can finance against the higher value?

Would the transaction be treated as a related-party / non-arm’s-length sale?

Can a seller carry from the first buyer sit behind the new DSCR loan?

And have you seen lenders accept the higher basis when both the appraisal and in-place NOI clearly support it?

I’m particularly interested in experiences with 5+ unit multifamily or small commercial properties, rather than residential flips.

Would love to hear from anyone who has actually structured one of these and what the lender/title company required.

Greg Scott · Answer

Self-dealing to drive up historical transaction prices got a number of people put into jail as the GFC unfolded. However, your plan seems unnecessarily complicated.

An above-market cap rate is the same as saying you bought below market price. Any valid appraisal should ignore what you are buying it for and give you market price.

Most commercial loans are DSCR-based loans, and the term "DSCR loan" is typically used for single family because historically you woudn't put a commercial loan on a SFF.

If you were able to buy a 5+ unit property far below market rate, it might be able to support a loan above the purchase price. Even if the initial lender balked at that idea, if the NOI is real, and you can prove it under your ownership, you should be able to refi in short order.

Eduardo Cambil · Answer

Greg, this is exactly the distinction I was trying to get at. I’m not looking to create an artificial higher transaction price or do anything that would be considered self-dealing.

The idea is that the appraisal has to independently support market value, and the actual in-place NOI has to support the debt. If we acquire a 5+ unit property below market and the lender limits the acquisition loan to purchase price, then the cleaner approach may simply be to close with senior debt + a fully disclosed seller carry, season the property, and refinance based on the demonstrated NOI and appraised value.

What I’m trying to understand is whether any commercial lenders will recognize the stronger appraised value at acquisition, or whether practically speaking they’ll almost always lend off the lower of purchase price or appraised value and force the value capture into the refinance.

On a 5+ unit deal, have you personally seen lenders give acquisition proceeds above purchase price when the appraisal and NOI supported it, or has that only happened on the refinance side?

Has anyone done a fully disclosed double closing on a high-cap multifamily deal?

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