Funny story: Trash Talk Leads to Real Estate Investment.
Two neighbors became friendly from years of taking out their garbage together. They both owned businesses that shared the same alley. The restaurant owner told the bar owner that he and his wife had an eye on retirement. The bar owner told him that if he ever wanted to sell his building, that he’d like to buy it. This summer (2018) they came to terms. The Buyers had applied to a bank for financing, but the loan fell through. They were cash poor and equity rich. That is when IPC received the referral to help them.
There were several challenges we had to overcome: One of the buyers had a substantial stock portfolio that he did not want to liquidate and pay capital gains. Another partner had no money and no credit but put the deal together. The third partner had equity in a San Francisco tri-plex, no money, and is a foreign citizen living in Europe. We creatively arranged three loans:
- Stock portfolio loan at 75% of its current value, at 4.35% fixed rate for 2 years.
- Loan secured by the tri-plex, lent at 7.625% fixed rate for 3 years.
- Purchase loan secured by the commercial building at 65% LTV, at 8.625% fixed rate for 3 years.
The stock portfolio loan did not require the owner to liquidate. The loan becomes a perpetual line of credit after the fixed rate term. The loan on the triplex was challenging because the property had limited income history, as it was recently remodeled to be a luxury Airbnb rental, and the foreign owner has no other source of US income. The purchase money loan is a negative cash flow situation, where the restaurant is now vacant and one of the two commercial tenants has an expiring below-market lease. The stabilized numbers make sense, and the game plan is to demolish the existing improvements and build a mixed-use condominium project.
The Power of Relationships
This deal held together because the buyer and seller were neighbors with a good relationship that had developed over ‘trash talk.’ Investment Property Capital was called to rescue the deal based on our relationship with a Realtor who knows of our track record of success. The deal held together when it could easily have been canceled, given the fast-paced, high-stakes San Francisco real estate market. We communicated consistently with all of the attorneys representing the buyers and the sellers, and provided them certainty of closing. This was a complex transaction due to the many parts and parties involved, and we delivered on time with very competitive terms. For more information, contact your IPC loan consultant.