I’ve been trying really hard to find smaller banks in the midwest/PA/OH areas that would do the financing of parks with a subordinate. Say for example, they finance 75/80% and then the seller comes up with 10%, and the buyer with the rest, or some variation of that if we change %'s a bit. Basically a way to lower your down payment from the traditional 25%.
I’ve heard success stories of other operators doing these, but am yet to find a single bank that allows it. Maybe it’s the current climate in the country or maybe I’m presenting to the banks in the wrong way. I’ve tried knocking on a ton of doors and no success so far.
Would love any recommendations to banks that work with these or feedback if in maybe I’m going the wrong way about it. Thank you for your time.
Instead of changing the bank, change the financial instrument. Instead of 10% debt from the seller, offer a 10% preferred equity stake that is convertible to debt. May be more palatable to the bank that way as it is not pure debt.
Forgive my ignorance, but I’ve never heard of this method. How would a equity state work in this situation? Have you done one of those? I’d love to learn a new way to present deals to banks.
Best is to consult with a securities attorney on that. Basically, you offer preferred equity for a negotiated percentage dividend payment. Then, when a mutually agreeable set of circumstances arises, you convert the equity to debt. Advantage is that when talking to the bank, the seller is your “partner” and is not simply loaning money to you.
We are private lender, not a bank, but we do this all the time. I am working on one deal now where we are doing a 65% first, the seller is holding subordinate financing of 25% and the buyer is coming in with the remaining 10%.