Ok, let’s say the City Fathers are warming up to the idea of using their eminent domain powers to acquire your mobilehome park. BUT, in order for them to leap into the great unknown, the City Fathers must know that there is a viable ACQUISITION PLAN, and an EXIT STRATEGY to get the City out of the deal, and get the resident group into the deal. Your group has the present them with the PLAN.
The remaining Blogs in this series will discuss the PLAN, starting with financing and timing.
If you recall from the prior Blogs, if the City Fathers use their powers, you basically know that you’re going to get the park.
However, a BIG issue is how do you finance it? We focus on financing in this and future Blogs. Also, Note that the timing of all this financing has to be coordinated so this complex transaction flows as smoothly as is possible.
(The group might also have some settlement proceeds from lawsuits with the park owner, and might be able to come up with the equity money from individual park residents. Both these sources impact upon how much and what type of money is needed.)
The group usually needs TWO kinds of financing:
- First, some form of interim financing to actually buy the park from the owner and stabilize the terms of the deal, and,
- Second, some from of permanent financing to pay off the interim financing and fund all the other stuff typically required in a resident park purchase deal.
The group needs two kinds of financing because permanent lenders won’t waste time on a deal where everything is in a state of flux and where there are too many unknowns. Permanent lenders need certainty so they can properly underwrite the transaction. Using interim financing “sets the terms” of the deal so the permanent lender can process their loan.
[NOTE: The resident group needs to be VERY cautious throughout this process about the motivations of the other parties to this deal. The goal for this deal is for the resident group, at the end of the day, to actually OWN the park.
The group doesn’t want the City to own it, nor do they want to enter into a negotiated deal (if they can avoid it) with the park owner that could fail and cause the park to revert to the park owner.
Two phrases come to mind (note that the resident group is the “Lamb”) – “The Lamb shall lie down with the Lion but only one will get up”, or, alternatively, “The Lamb shall lie down with the Lion, but the Lamb won’t get much sleep.” Pick one.]
Today, we overview interim financing. We will talk about the details of interim financing and then permanent financing in future Blogs.
Sources of Interim Financing:
[Note that it is unlikely that these interim financing sources will make a loan directly to the resident group, since the group probably has no credit history and no track record. Thus, the likely initial borrower is the City.]
There are a variety of potential sources for interim financing.
- A Bank Loan made directly to the City
- A Commercial Bridge loan made to the City
- Some form of state/regional/local government borrowing
- Some form of bonds (tax exempt or not)
- City general funds
- Financing from the park owner (seller)
- Other
I will go into detail on these alternatives in a future Blog.
I will be in touch.
Deane
Deane Sargent and PMC Financial Services have been helping mobile home park resident groups and cooperatives to organize and find financing to buy their parks for over 20 years.