Case Study- Ten Property Portfolio Deal with John Femenia

 

John Femenia, found of Source Realty Capital, recently closed a 10-property portfolio deal in Hollywood, Florida for one of John’s repeat borrowers. 

The borrower came to SRC after another lender wasn’t able to close the deal. This left us a limited amount of time to get the deal done, as the borrower had over $500,000 deposit on down on the property that had already gone hard.

Deal Overview

The borrower was purchasing a 10-property deal consisting of nine properties that ranged from 2-4 families, and one 6-family property.  The total unit count of the deal was 36 units.   The deal was split up on two different contracts.  Each contract was for $2.6 million, for a total of $5.2 million.  The borrower put down 10% on each contract, for a total of $520,000.  The properties were 100% leased.  The cap rate for this deal was 6.5%. 

Timing

The borrower came to John Femenia in mid-December looking to close this deal. The borrower had a TOE for January 16, 2023.  Not only did he have to close this contract with the seller by the 16th,  but even more importantly, his 1031 exchange from the sale of another property expired on the 16th away.  This was a true hard stop on the 16th.   "Generally, buyers can always 'buy time' on contract, especially in this market, but there is no extending a cutoff for a 1031 exchange.  If he didn’t close by that date, he would have to pay taxes on approximately $2 million of income.   The pressure was on to get this deal closed!" commented John Femenia



Financing

The borrower initially wanted to purchase this these properties with a long-term DSCR loan.  However, given the tight timeframe, John Femenia suggested that the borrower use a bridge loan for the purchase of the properties. The borrower was initially reluctant to do so due to the extra cost; however, John Femenia was able to convince the borrower to use the bridge loan for the purchase, since the borrower would not have time to close the long-term loan.  “Losing a $500k deposit is much worse than paying a couple extra points” John Femenia told the borrower.

The bridge loan for the purchase of this property was at 60% of the purchase price, or $3.12 million loan.  The borrower used his cash from the 1031 exchange for his 40% down payment and closing costs. 

“For any lender, a loan at 60% of purchase price is a slam dunk deal” commented John Femenia.

Closing

One of the main challenges of this deal was coordinating all the documentation needed for the 10 properties.  This was a matter of coordination with several different third-parties.  Another challenge was including the 6-family property with the other 1-4 family properties, since a 6 family is different asset class than a 1-4 family.  The solution for this was to break the 6 family property out of the contract with the other 1-4 families.   The contract were amended and these ten properties ended up closing all on the same day, but with three different loans.

“Whenever you have ten properties that all have to close on the same day, it’s aways a complicated process. We were happy that we were able to close this for our borrower, and we’re already working on the refinance loan” commented John Femenia

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