Eminent Domain – Interim Financing

OK gang, we last left our discussion where the City Fathers were waiting expectantly for the resident group to present them with an ACQUISITION PLAN that, as far as the City Fathers are concerned, is NOT political suicide.

There are lots of elements to such a PLAN, but a big initial issue is getting the money to acquire the park at the ‘get go’.  (And you say to yourself, “What/when is the ‘get go’ ”.) 

For this Blog, the ‘get go’ is the point where someone has to write a check to the owner and actually pay for the park.  And, unfortunately, that is a moving target subject to variables that can be anticipated but can’t be determined until you get to the proper point in the process.

By this I mean that you know someone on your side will eventually have to write a check.   However:
        1) you really don’t know when,
        2) you really don’t know how much,
        3) you really don’t know who is going to write the check and,
        4) you really don’t know what your lead time will be from the point where you find out   about 1), 2) and 3) until someone actually has to write such a check.

That means you have to have someone with a bunch of money standing by to fund the purchase on relatively short order.  And that someone is probably NOT going to lend the funds directly to the resident group.  Rather, that someone is probably going to loan to the City, since the City has, hopefully, a more financially stable track record than the resident group (at this point).

So, what are the likely options?

THE CITY
The first most likely funding option is the City itself.  (At some point, the attorneys will get involved.  We talk about them below.)  The City might have the funds in their General Fund.  They might also have some Community Development Funds available (if those funds haven’t already been grabbed by the State).  

Remember that other folks have their eyes on any City funds already lying around.  City Staff probably has their projects that they want funded.  Other City Fathers have pet projects.  Other local non-profits are not getting the donations they usually get and want to City to make up the shortfall.  And, not least, other citizens will take issue with this use of funds to help “trailer park folk”.

Or, alternatively, the City might be willing to borrow funds from some sources – a bank, a commercial bridge loan lender, taxable or tax exempt bonds, etc.   Outside sources will still have to underwrite the deal and, just like the City Fathers, will expect an exit strategy to get repaid.  Don’t expect to get funds from the State.  They might have program for interim financing, but the process is usually so cumbersome that you will never get the funds on time.

As I mentioned earlier, also be careful about a plan involving tax-exempt bond financing.  The City certainly can probably do bond financing, but it is very (very) complex, very (very) expensive (particularly for small deals (Under, say, $10 Million), and you MUST get a bond attorney’s opinion that, after the acquisition, your group can get the park from the City.  [People can be sneaky and there are some Cities where the Staff or a non-profit has said, “Gee gosh, we can’t transfer the park to your group until the bonds are paid off.  So, shut up, pay your rent and we will get back to you in 10 or 20 years.”

Remember, at the end of the day, when your group owns the park, the group will have paid for EVERYTHING – the park, the fix up, the reserves, the prior loan costs, the costs & fees of the permanent funding, and, last but never least, the attorneys.

THE ATTORNEYS
I will talk more about attorneys in my next Blog.  At this point, suffice to say that I have a belief that there is a ‘critical mass’ of attorneys for every deal.  By this I mean that, since nothing gets done in our society if you don’t have attorneys, the trick is to have the proper number (the ‘critical mass’). 

If you have too few attorneys, no one thinks the deal is serious and worth their time and effort.  If you have too many attorneys, they all have to justify their fees so they stand around and discuss arcane legal matters (How many angels can legally dance on the head of a pin?) and run up their bills.  The ‘critical mass’ of attorneys is perfect.  And remember, your group has to figure out how to get them ALL paid.

I’ll talk about attorneys in my next Blog.  And don’t let me forget to talk about owner financing of the purchase (a delicate but doable process.)

I will be in touch.

Deane

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