Property Level Capital Raising
Hey Guys,
So I have recently left a position in PWM and joined a start up restaurant holding company in corporate finance and business development. We are acquiring a piece of ground to build a new restaurant and will be financing the land acquisition, construction and FF&E through the issuance of collateralized mortgage notes against the real property in the form of a private placement. The notes, in my opinion, are priced very generously to include a very favorable yield, strong collateral, and pretty savory warrants. (terms: $7,500,000 / 9.05% per annum paid monthly / interest only for 10 yrs / warrants in the holding company common up to the amount of the subscription in the notes (currently priced in the money) The reason the offering is priced the way is, is because it carries a pretty high LTV (we are still awaiting the appraisal, but based on our comps and assumptions is should come in around 90% LTV (100% LTC)). Because of the the high LTV and age of our organization (lack of history) we aren't planning on having access to traditional real estate lending (local bank loans). Also, because the offering is relatively small ($7.5M) we are not really a target for larger, commercial lenders. For this reason we are filing our offering under Reg D 506(C) which gives us the ability solicit our offering to the masses (accredited investors). Once we finished writing the offering documents, it became my job to chase down lenders. I am doing everything from cold calling investment advisors, financial advisors, and high net worth investors to calling boutique CMBS lenders, venture debt firms, REPE guys, etc...
So, to the question as to why I am telling you this... Does anyone have any experience with this? Are there any specific shops you might recommend calling that are active in this space? Are there any FA's on this site that get pitched deals similar to this? (we are going through compliance at ML right now to get approved for their IRA program) Any insights into property level capital raising from either side of the transaction would be greatly appreciated.
Thanks!
TripleNet
I dunno... This sounds pretty impossible to me unless you guys kick in some dough
I know some hard money lenders that would look at this ... But not at 100% ltc
A speculative land deal for a non-credit quality restaurant development priced at 9.05% I/O for 10 yrs? Please provide more detail. What region of the country? Did you retain any contacts from your PWM days and if so, why go through Reg D for such a small capital raise? The dirt is only going to be worth so much (est. 10% of total costs). Seems like your "mortgage notes" should be priced closer to at least mezz (min 15% as opposed to the estimated 10.5% yield that the investor would get under your proposed terms.
The ground is in Colorado Springs, CO. Adjacent to our lot is a Bass Pro Shops (opened in Dec '13), median household income within a 10 mi radius is $122,000, 10,000 new housing permits approved, 30,000 professionals within 5 miles (Oracle, USAA, FedEx corporate, T. Rowe, and a couple others). This is a very, very green development though, other than Bass Pro Shops there is just about nothing, however the master plan over the next 3-5 years will drive up the value of the land significantly in my opinion. There is a new 30,000 square foot resort breaking ground this year, and a major intersection is being built that will feed Bass Pro Shops which is literally a 6 iron from our ground. This is all speaks to the relative strength of the collateral.
I do think that there is value in the warrant. Obviously it is a micro cap deal, but I think we have a scalable brand, competent management, and like I said the warrant is in the money right now. An investor will, obviously, have to discount that warrant a bit depending on their agenda, but I think an investor who is going to take this offering or a piece of the offering is going to have to have some risk tolerance to begin with.
I do have some PWM contacts that I am working on, because I was in NYC though, most of them are still there. They are having a hard time placing client money without seeing it, also getting a deal like this through compliance at a large PWM firm is brutal. Either way, I appreciate any feedback, thanks!
Is this your first one, or have you guys built others?
We have a downtown Denver location that was a rehab on the ground level and basement of a a historic hotel and one other restaurant opening at the end of this month in Colorado Springs. Both were financed with a combination of equity, partner capital, bank debt. For example, the partners would set up an outside unaffiliated LLC that would buy the ground, then borrow bank debt to build the building, and sell a little equity to finance the FF&E and pre-opening expenses. But these become like 60/40, which is why we had no trouble getting in the bank.
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