Condo Conversion Financing Options
There is a property that I would like to purchase and convert the units into condominiums and sell. I am trying to figure out a way to get the deal done.
Purch Price $7.5 million
ARV $12.7 million
conversion rehab/expenses: $710k
Complex cash flows approx $700k before debt service now. There will be no expense for daily operating during the conversion. There is enough profit to cover this. This number is based on 90% occupancy which is over the norm of 95% for the past 4 years.
profit to be made before debt service: 4.5 million
There is a $4.5 million assumable loan on the property currently
Sellers are willing to finance their equity (2 million)
Timetable is 2 years max. This likely could be done in less than 1 year in my area but all of my numbers/times are conservative.
I have my team put together and there is nothing I have left to figure out except how to finance the deal. I am willing to partner and give away much of the profits.
IDEAS?? THANKS[ Edited by myfrogger on Date 04/23/2004 ]
anyone?
Have the owner sell you the complex sub2 and hold a second for their equity. I understand your conservative timetable,but why not have all the tenants leave? What is the mix of units in this complex?
I forgot to mention something--although the loan is assumable or able to be taken sub2 (which is preferable by sellers because of $600k prepayment penalty), the loan does not allow for the release of the lien of each unit as I would sell them.
I am hoping to market to the tenants to purchase the unit and stay because their montly payment would be less than their rent--even at 100% LTV.
There are a unique variety of unit configuarations:
36--2br / 2ba
12--2br / 1ba w/den
48--2br / 1ba patio or balcony
12--2br / 1ba garden
24--1br / 1ba w/den
36--1br / 1ba patio or balcony
12--1br / 1ba garden
80--garage
THANKS[ Edited by myfrogger on Date 04/24/2004 ]
As associate of mine is doing an 81 unit conversion in San Diego. He created a JV with an an established firm with deep pockets and financial resources.
The purchase was financed via a BofA construction loan. You will need partial releases, standard in construction loans, when you sell the units. Perm financing generally won't allow for this.
I'm not sure of the subdivision procedures where you live. Here is CA you will typically need planning commision approval and formal subdivision with the Department of Real Estate. The DRE issues a White Report when the process is complete allowing you to sell the units.
Phasing the rehab is a great way to proceed if practicle. Absorption also will determine how economical it is to phase.
Sounds like you have a great profit margin. What is the market like for 1+1 condos? How fast can you sell them?
Back to financing, based on the strength of the financial partner, you may not need lots of hard equity. Often a letter of credit may suffice. Check with your larger lenders for their u/w criteria.