CMBS and Seller Notes


#1

I’m buying a park with a CMBS loan and the seller has offered me a seller note to help me reduce my hard equity in up front.

The challenge is CMBS does not normally allow seller notes. I need this note to close the deal, how can i get this done?


#2

Well, you can either declare bankruptcy or go to prison when you are accused of defrauding the bank.


#3

Seems a bit extreme of a response, no one suggested committing fraud, just if there is a way to accomplish this. One pm suggested structuring it as pref equity.


#4

Sorry it was a little harsh. The CMBS loan will require you to covenant that you have no external or hidden obligations (such as a “seller note.”) If you are not coming in with the “hard equity” (i.e. down payment) that the lender wants, then to get around this, you are headed toward bank fraud. If you “need this note” to get the deal done then you can’t meet the Lender’s requirements and you will need a partner. If you are partnering with the Seller in this manner, #1 it doesn’t look like a sale anymore, and #2 you had better make sure the Lender understands and approves the deal.


#5

Whoever sent you the PM is right. If your seller wants to have the property serve as his/her exclusive collateral, you’ll need to structure it as preferred equity, as opposed to a second mortgage. The seller would just become part of your org structure, which the lender will need to approve.

Keep in mind that the remedies are much different for a pref equity loan, so it will depend on how sophisticated the seller is and if he has good legal representation. As a seller, I would not want to provide a pref equity loan to a buyer I don’t know since it doesn’t afford me the same foreclosure remedies.


#6

I’m just thinking out loud here - what if you were to secure a loan(s) with another property / properties in your portfolio?

The lender (on the property you are acquiring) should not have any issues since it does not interfere with their guidelines.

Just a thought…

Mike