Structure of Mortgages on Joint Venture agreements

Question

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.

larrison34 · Accepted Answer

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?

C.R.E. Shervin · Answer

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

SHB · Answer

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.

larrison34 · Answer

Good answer.

The developer/GP is also responsible for pre-closing pursuit costs which can easily hit $1MM for an institutional grade deal.

You simply cannot get into development as a GP with no experience...no risk...and no assets.

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Structure of Mortgages on Joint Venture agreements

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Structure of Mortgages on Joint Venture agreements

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