This post is a follow on from Part I where I reviewed a retail plaza investment opportunity. Here I talk about financing and lawyers.
The biggest hurdle is going to be getting a bank to let me put just 20% down. Typically lenders want 25% or even 30% down. And I have no experience in being the landlord of commercial shopping plaza. From my multifamily investing experience I know the lender will need to "sell" the deal to the underwriter and bank executives. I spent 90 minutes putting together a 12 page "pitch book" with these sections (and lots of photos, including of my family):
- Property overview
- Local area
- Our portfolio and strategy
- Our profile
I spoke in person to and shared the pitch book with eight lenders: four regionals and four local area banks/credit unions. My talking points went something like:
"My wife and I [emphasize family] want to invest in X area with which you're probably very familiar [emphasize community] and we're looking for a long-term partner [emphasize more future business]. We already own X [emphasize credibility] and we've run the numbers [emphasize competency] on this and it looks solid. What we like about it is X [emphasize risk understanding]. I prefer to deal with local institutions because you move quicker and are more willing to give and take [emphasize their value]. Can I understand what you're looking for in a client and area [emphasize mutuality]?"
I specifically asked the institutions not to create an offer letter at this stage. I want the lender to know I value their time. But I have been direct about the terms I'm looking for. I've been pleasantly surprised by what has come back:
And this is the starting point to negotiate from. I expect I'll be able to get close to what I want but maybe with a slightly higher rate.
I decided to find a local attorney. I want someone who knows the local zoning laws. Somehow (somehow!) on the second Google link I found original attorney who got this lot of land through the zoning board of appeal. A needle in a medium-sized pin cushion.
The attorney talked me through the buying process on an intro call. I'm especially reliant on this person because the broker represents both the seller and buyer (me). I'm told this is common in commercial transactions.
3 days = time to agree on and sign an LOI (letter of intent)
10 days = time to agree on and sign a P&S (purchase and sale agreement)
30 days = time for due diligence
30 days = time for closing
Below is the (redacted) LOI the broker sent me with some changes my attorney made in 15 minutes.
My attorney marked up the purchase and sale agreement the seller's attorney sent through. I have not had chance to review it yet.
Next up is Part III. I'll review my due diligence.
For random takes on real estate investing you can follow me on Twitter @laziestlandlord