Defeasance Workaround

I’m talking to a seller in a great market who really wants to sell his park at a good cap. The problem is that he has 4 years defeasance left on his loan. I believe it’s ~400K now that rates have gone up. Park is worth about $5M. He doesn’t have time to manage the park and wants to sell.

The idea I had is this: Could I not just master lease the park with option to buy in 4 years, then buy after defeasance has gone away?

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My thoughts exactly. Build a monthly payment that works for both of you. Improve the park/raise rents for 4 years. Unless he needs a big payout it could work. Good luck

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Can you assume the loan and have him owner finance the equity gap?

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The details matter, but likely you cannot do this without the bank’s permission. You’ll have to read the fine print of the loan agreement. It might be cheaper to assume the loan if that’s possible.

I haven’t been in this situation before, but doing an assumption and seller carry second will take a fair amount of paperwork and some fees, but would likely be vastly better for you. A lot can change in 4 years, and if the seller for who knows what reason doesn’t sign paperwork to finalize the sale after 4 years, you’ve got a long legal battle on your hands to enforce the contract.

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Hope I’m not too late to the party…

If the lease/option doesn’t produce what you and the seller want/need…

Do we know exactly how much the defeasance will cost? If you can somehow put that amount into your deal and still make it work, try it. Or you and the seller split the cost somehow.

Here’s a weird solution. But I’ve used it before when refinancing a small apartment building.
I needed cash out from one asset to purchase another asset but the asset/building had debt on it when I bought it.

The problem for the lender is they lend on collateral. Whether residential or commercial.
That’s also an opportunity, but first things first.

  1. See if you can pay off part of it at closing. Details matter. Get #'s in writing from the servicer/lender.
  2. If the servicer/lender agrees, move the collateral to another property. It’s called substitution of collateral.

Thanks for listening,


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