Trash Talk Leads to Real Estate Investment
A bar owner in San Francisco befriended one of his neighbors, a restaurant and building owner, over trash. They would chit chat while hauling out the bins on garbage day. A few years later the Bar man told the Restaurant man that he would like to buy his building.
In July of this year the question of a sale came up again. With an eye on retirement(40 years of serving food in the Tenderloin), the Restaurant man threw out a number. The Bar man thought about it and made him a formal offer on paper. The Restaurant man’s business partner (his wife) said yes. Don’t argue with the Boss.
The Bar man pulled together a small group of investors but the bank financing they applied for fell through. That is when I was called to the rescue, referred by a Realtor whose clients I had helped in the past.
The Buyers were originally four partners, but one dropped out. One of the remaining members is a local Contractor, tired of building other people’s dreams. None of the buyers had much cash. However, one had a substantial stock portfolio and another a triplex in Twin Peaks with some positive equity. At IPC we creatively arranged three loans:
1. Stock portfolio loan at 75% of its current value, at a rate fixed for 2 years at 4.35%
The stock portfolio loan has 5 distinct advantages: a)the stockholder keeps the entire portfolio without liquidating, and therefore avoids capital gains; b) the stockholder can trade as he/she normally would; c) the loan becomes a perpetual line of credit; d) the borrower does not have to personally qualify, so credit and income history do not matter; e) is can be paid off anytime without penalty.
2. Loan secured by the triplex, fixed for 3 years at 7.625%.
The loan on the triplex was challenging for two reasons; there was limited income history on the property as the owner’s unit had recently been vacated and upgraded to be a luxury Airbnb rental. and there was only 1 month of income history. Also, the owner lives in Europe, and has no other source of income.
3. Loan secured by the building being purchased at 65% of its price, fixed for 3 years at 8.625%.
The biggest challenge in this assignment was the loan on the property to be purchased: The restaurant is now vacant (no income) as the owners have now retired (dream fulfilled). A new tenant needs to be found right away. Also, one of the office tenants has a lease that is expiring soon, which must be re-negotiated. The property is a negative cash flow operation until these two problems are solved by the new owners. This fact was a deal killer for most other lenders. Our investor understood the challenges and the upside potential of the business plan.
?The Power of Relationships
Being a good neighbor matters, especially In San Francisco’s high-stakes real estate business, where sellers generally do not have a lot of patience for non-cash buyers. However, this deal held together when it otherwise could have fallen apart because of the good relationship established between two men hauling out their trash together.
IPC/Lodging Finance was called to duty based on the referral of a mutual friend and our long track record of success. We provided both buyers & sellers and their attorneys a high sense of comfort. Through our long-term / high trust relationships with our investors, we delivered maximum financing for this eventual development project. The deals closed in the last week of September, 2018.
If you know of someone who has a problem to solve or a dream to fulfill, and financing can help, I would appreciate your referral. For more information, contact Mark Skolnick, 415-893-9321