ACQUISITION + ARRANGED FINANCING

CLIENT CASE STUDY

Reallocate capital that was currently invested in the stock market and acquire another income-producing investment property. The target price range was $1M-$1.75M.

Many properties were both financially and physically screened from April-June, 2011. The initial short-list included three-3 apartment properties, a multi-tenant retail property and a few high revenue producing vacation rentals. We were not able to come to terms on any of the properties on this initial short-list. 

A developer owned condo project missed the market (not completed until 2008) and was now sitting with a handful of temporary renters and many vacant/new units. The developer was hoping to “wait-out” the market and ultimately sell the individual units as condos (value= ~$200,000+/- each). However, the underlying lender was putting pressure on the developer to liquidate. The developer reluctantly agreed to sell as a condo grade apartment complex. The asking price was much less than the once projected sum of individual condo unit sales, but selling a near half-empty apartment complex still proposed challenges. But, once fully rented (@ market rents), the property would immediately be worth 20%+ more than the list price (even as apartments).

Since this was a non-performing apartment complex (vacancy at time listing time was 38.4%), any conventional lender financing would not be able to be secured. Hence, the amount of investor cash required to purchase would be considerable, and out of play for many private investors. And, to make things even more challenging, the existing loan amount exceeded any reasonable current market sale price. Lender approval (and release) would need to be part of any deal.

Purchase & Sale Agreement was executed with necessary provisions (including lender release). Terms and a timeline for lease-up was also detailed. Contract language was such that our Client would have the authority to participate in the lease-up in order to secure needed tenants if the seller failed to do so by the deadline in the PSA. The contract was drafted with language that would make it difficult for a “reluctant” seller to purposely kill his own deal.

Though a long and arduous contract period (June 21st through November 15th), the deal got done. The final purchase price was $1,466,000. The appraised value came in at $1,650,000. As of February, 2012 the property was fully leased up (@ full market rental rates) and monthly collected rents increased from $8,675 (June, 2011) to $14,459 (February, 2012). Based on current market capitalization rates, a value of $1,775,000+- is suggested (2/2012). This numbers tell it all.