Wealth Opportunities in Commercial Real Estate: Management, Financing, and Marketing of Investment Properties

Borrower's Proposed Terms

• Bifurcate the loan into A1 and A2 pieces.
• The A1 piece would be $4,000,000 and earn interest at the Note rate of 6 percent.
• The A2 piece would be $2,754,570 plus any past due interest at the Note rate of 6 percent.
• Borrower would put up $1,000,000 (New Equity) into an account to be held by the lender for any tenant improvements, leasing commissions, capital expenses, or any repairs needed to the building including the thrift store build-out. The New Equity to be paid a return of 15 percent.
• Lender to waive all default interest and penalties.
• A reserve for taxes and insurance to remain in place, but lender to waive all other reserves for tenant improvements, capital costs, and leasing expenses.
• Lender to charge interest on an interest-only basis.

Cash Flow

Monies from the project to go first to pay the approved operating expenses, then reserves for taxes and insurance, then—commencing when the thrift store is in place paying rent—to pay the A1 interest on an interest-only basis, that is, $20,000 per month ($4,000,000 × 6%/12), then to pay a 15 percent return on the New Equity. If there is any additional cash flow, the funds would go 50/50 to the borrower and to the lender.

Sale

The net sale proceeds would go to closing costs, then to pay off the A1 piece plus any accrued and unpaid interest, then the New Equity plus any accrued and unpaid interest at 15 percent, then 50/50 to the borrower and the lender.

Refinance

The net refinance proceeds would go first ...