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USING LIMITED PARTNERSHIPS TO GET YOUR PROJECT FUNDED

Have you had a situation where you or your client/borrower has had limited resources and was unable to secure an Equity Partner for a "cash infusion" to get their commercial project to the "shovel ready" stage?

If so, I may have a solution for you...

Recently, we have successfully structured several transactions with the land owner (seller) and the developer (borrower) whereby the two parties created a Real Estate Limited Partnership to secure the funding for the developer's project.

Here is How it Works:

The developer and land owner forms a Real Estate Limited Partnership.  The land owner then becomes a limited partner with the developer assigns the rights to develop the property to the developer.  As a Limited Partner, the land owner can now choose to become an equity partner, share in the profits of the project and/or be bought out at a premium at later date as stabilization and/or permanent financing is obtained. 

Obviously, there must be some enticement to induce the land owner to do this which might be to pay a premium for the land. Example:  Pay 10-15% over and above the asking price of the land to be paid at stabilization of the project or upon obtaining permanent financing, etc.  Another option would be to retain "X" number of units as compensation.  The options are limitless and of course are subject to negotiation between the two parties.

Why it works:

Sellers/land owners are usually wealthy individuals that are always looking for good investments that offer a good rate of return and a significant level of security.  As the "land owner" they are already thoroughly familiar with the collateral and aware of the possibilities and opportunities that exist for an experienced developer.

 Three (3) Questions That Can "Make it Happen":

 There are three questions that the land owner will want answered when considering this option:

 1.    What's in it for me?

 2.    Why should I?

 3.    Why can I not?

If your client can provide the land owner with highly compelling answers to the above then this might be an option that can get you client's project financed.

Benefits to the Land Owner:

1.    Quick sale of the property

2.    The Land Owner still retains rights to the property as a Limited Partner

3.    They can receive a premium price for the land for entering into this structure

4.    Possible profit participation, equity partnership, etc. 

5.    Possible limited partnership buyout at a premium

Benefits to the Developer:

1.    Acquisition of the property through the Limited Partnership

2.    Eliminates the need for a cash down payment of 30% or more 

3.    Cash infusion from land owner to get project to "shovel ready" stage

4.    Obtaining a development and construction loan is made much "easier" because as a Limited Partner, the developer "technically" already "owns" the land

Our very experienced, SEC Registered Investment Advisor knows how to structure these transactions because he works with hundreds of Fund Managers and knows their "appetite" for this type of transaction which is very high.  This type of transaction tends to receive a more favorable response from the Fund Managers when the developer "technically" owns the land.   The reasoning behind this is that the developer is only seeking a development and construction loan as opposed to an acquisition, development and construction loan. 

The result:  The probability of obtaining a successful funding for this transaction with this new structure increases substantially.

Now, I am not sure of the flexibility and/or willingness of the land owner to participate in such a structure but I thought I would present this to you to see if this may be something that your buyer and seller would be willing to do in order to acquire / sell the subject property.

Important Points to Consider:

1.    The land owner must be "flexible" and have the willingness and the ability to enter into the Limited Partnership

2.    There must be sufficient equity of 80%+ in the property (Free and clear properties work best)

3.    Land owner/partner must be liquid and willing to pay for any costs needed to get the project "shovel ready" (appraisal, feasibility study, all other costs, etc.)

Please let me know if this structure is a possibility with your buyer and seller and I will personally work with you to develop a plan of action to put this strategy into play.  Also, if needed, I can forward you a very "generic" and basic development agreement that you can forward to your buyer and his attorney so that they can use as a "starting point" and present it to the property owner for consideration.

I am hopeful that this new structure may be able to help you and/or your client to overcome this obstacle and commence with the development of his project

Please feel free to call me with any questions.

Send mail to RayW@CaribbeanMortgageLoans.com with questions or comments about this web site.
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Last modified: March 06, 2010