Completely noob RE question here but looking to get some clarity.
Looking to purchase a residential property for development purposes through a holding co but looking to JV it out to several parties.
Given the company has 0 assets today or revenue, how would the GP qualify for the mortgage to a bank/broker when its through a holding co instead of a personal guarantee.
Realize this is a pretty simple Q. but curious what that would look like to an emerging holding co.
If you're as new to the process as the above indicates you might be, you'll be getting recourse paper for any development deal unless it's literally the perfect deal and you have something else going well for you (substantial net worth, well known LP's, etc).
Any books / resources you’d recommend to learning about structuring deals?
Well you would most likely be using hard money so your interest rate would be very high.
What you should be doing is looking for a co-gp who has the liquidity to sign for a more conventional form of financing. Then you can raise the LP around this co-gp structure.
You would state that the GP is responsible for securing the mortgage on the property
The holding company component is meaningless to the overall equation. It's a fallacy to think that simply creating a new LLC is a creative way to obtain financing with zero assets or personal liability. It's commonplace for lenders to require personal guarantees for assets held by an LLC (depending on circumstances).
More information is needed to provide a proper response. Who is the GP? Who is the LP? Will the GP be a JV? Is this a residential or commercial loan? Is this debt to fund the development costs? Are you attempting to first purchase and then create a JV? Is this an income producing property? Would you be attempting to obtain agency debt?
Typically...it takes at least 40% equity when I finance income producing assets through an LLC owned by my 401k...and the interest rate is a several bps above the norm. That is for non-recourse debt...which is legally required for 401k-backed investments. Keep in mind...this is for cash flowing properties...I have a track record...the official borrower has assets...and the debt comes from a local bank with whom I've had a long term relationship.
1) Sponsor with no track record 2) No well known LP 3) LP or JV members not identified yet 4) Development, non cash flowing deal
Without a doubt you're going to sign a personal guaranty, assuming you have the financials means to support the guaranty that would make anyone want to even lend to you. In addition to that if you have to take a mortgage on a land acquisition you're going to be paying out the nose in rate and fees.
To play the other side and assume you don't want to sign a personal guaranty and/or you don't have the financial means to support the guaranty, how could you act as the sponsor and participate in the deal or receive fees on the promote to your circle of investors?
Generally the sponsor/GP puts up the guaranty if one is required, itsone of the reasons why the GP earns a promote. Obviously your LP or another investor could put up a guaranty if the deal requires it but they would want to be compensated. How that works could be a myriad of ways.
I'm having a hard time understanding your question though because it seems to be asking "How do I make money off a deal when I have no experience and I cant afford to buy" which I would respond with "you don't"
EDIT: If you think you really have a good deal in hand and you just cant pull it together you can always shop out your contract, either buying yourself a few points in the deal or for a fee.
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