S.E.C. Real Estate Observer

• Tweet

• Tweet

We had an excellent quality large asset offered for sale. Owned by a successful nonprofit faith group, it had everything for the discriminating buyer: excellent dining facilities; beautiful, well-appointed motel rooms; cabins; and a land lease section with privately owned homes/cottages, all located on a beautiful, long beach. It had “pride of ownership” written all over it.

Besides the benefits noted, the project was owned free and clear of debt and enjoyed two separate registry titles.

Potential buyers were impressed with the facility except for two things:

1. The location being considered was just out of comfortable driving range, and/or
2. The financial inability for buyers to take on such a project.

WHAT TO DO?

It was determined that the seller/client had, in fact, the tools and motivation to think outside the box and be a catalyst in consummating a satisfactory transaction to benefit all.

THE ULTIMATE BUYER

Enter the ultimate buyer. Through the “meet and greet” process, we were able to determine these things:

• This particular buyer would fit the profile of an entity who could benefit greatly from ownership of this asset.
• They needed the subject facility immediately.
• They had absolutely no cash.
• They owned a piece of property in another geographical jurisdiction that had recently had extensive fire damage and was now considered vacant land only.
• Any insurance proceeds had already been absorbed.
• They had recently negotiated a sale agreement for this vacant land for cash—but with a closing date a long way off in the future.

THE TRANSACTION

We were able to piece together a transaction something like this:

1. Approximately 70% seller take back mortgage
2. Approximately 30% taken as an exchange of the buyer’s vacant land, with assigned ultimate purchase agreement

SELLER/BUYER BENEFITS

Notwithstanding the lawyers’ being very angry that this transaction needed to close within a few days, everything worked smoothly.

The buyers were on site and operating within days of everyone working toward a common goal by putting the pieces together.

The sellers saw the cash portion eventually crystalized by the sale transaction on the vacant land site. It was reasoned that even if the ultimate buyer of the vacant land parcel defaulted for some reason, the land was of sufficient value to be eventually resold, if required.

TRANSACTION VARIATIONS

We remember another property that was considered a limited market asset. It entailed a retiring family operation also owned free and clear. Their retirement criteria was very clear: 50% cash down payment and the balance in an asset that would benefit secured income going forward.

This transaction closed as follows:

1. 50% cash
2. 50% in a well secured “off site” first mortgage

SELLER/BUYER BENEFITS

Seller benefits were a structure that allowed them to finalize their retirement plans at closing so they would initially receive cash flow via off-site mortgage and payout when it became due.

The buyer was able to raise the required 50% cash component via a first mortgage on the subject property, therefore qualifying this as a no money down transaction.