S.E.C. Real Estate Observer

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In the process of acquiring a building to “double-clutch” to our investor, we found the existing loan-of-old in favor of an insurance company that had financed a national tenant 20 years ago at 4 1/2%. The tenant was now gone, the tax shelter syndicate from across the country had abandoned the property (most of them were dead) and the loan was 4 to 6 months delinquent but had been paid down from $250k to $60k and been “written off” (we assumed it to be too small to waste a lot of executive or hired professional expenses). There appeared to be no movement by anyone to reach a solution.

We posted $15k cash in escrow and had the title company send the insurance company instructions to sign away their rights in exchange for the $15k. No negotiations had taken place; there was just enough communication to find out to whom they needed to send the escrow instructions.

Two weeks later the signed instructions came back and we had bought the loan. We were betting that we knew the circumstances of the note holder = COUNSELING IN THE BLIND.

In the end, we used 4-5 sexy S.E.C. formulas to acquire two buildings and reconvey them to our investor, making a disclosed $250k (m/l = can’t remember) without ever posting anything except the $15k. Those kind of deals would never have been possible without the knowledge we gained at SEC brainstorming sessions.

The client was a heavyweight attorney, and through our dealings with him we developed the use of a land lease to shorten the depreciation schedule on the buildings to 10 years straight line, because we only allowed him 10 years to lease the land with no options. Later we did a transaction with a trust run by a CPA for potential heirs of the attorney to market the leased land.

A side story: We went to post our escrow instructions with the title company for the purchase and sale of the buildings outlining all the financial machinations. The escrow lady said, referring to the double escrow, “You can’t do that! It would be illegal!” I stood up and shouted – so that everyone in the building could hear – “GIVE ME ANOTHER ESCROW OFFICER!!!!”