Eminent Domain – Permanent Financing

One of the most important aspects for a successful resident acquisition of the mobilehome park using eminent domain is locating PERMANENT FINANCING.

Permanent financing is the EXIT STRATEGY required by the City Fathers in order to pay off any interim financing and allow the City Fathers to recover their costs of the project.

However, you will encounter the classic “Chicken or Egg” problem.  Permanent lenders will not provide your group with a Firm Commitment for the loan until someone friendly (i.e., the City) owns the park and you have a deal with them, and you probably can’t get a deal with the City unless you have a permanent lender lined up.

So, it is somewhat of a crapshoot.

Thus, you will have to establish a working relationship with a permanent lender who understands the situation and is willing to work with your group.  

Establishing such a relationship is difficult because, to begin with, finding lenders willing to make a loan to a resident group is MUCH more difficult than getting an interim lender to make a loan to the City to acquire the park in the first place.

So, your choices are likely to be:

LOCAL OR REGIONAL BANKS
LIFE INSURANCE COMPANIES OR INSTITUTIONAL INVESTORS
CONDUIT LENDERS
FANNIE MAE & FREDDIE MAC
HUD/FHA
OWNER CARRY FINANCING

LOCAL OR REGIONAL BANKS
Banks are heavily regulated so their terms are likely to be less attractive – meaning a larger equity requirement and a higher monthly payment.  Still, they like to be viewed as a ‘local hero’, so they are worth a shot.

LIFE INSURANCE COMPANIES OR INSTITUTIONAL INVESTORS
These guys like large deals ($10-15 million and higher) and high quality, attractive parks.   Their terms are probably a little better than the banks, but they are not very familiar with resident park purchases and will be timid.  It may also be hard to locate one that will be interested.

CONDUIT LENDERS
These guys used to be active players in the resident purchase lending business, but they all died when the financing markets collapsed.  However, new ones are coming back into the market.  They are initially looking for traditional deals (apartment, commercial buildings, etc.) but eventually will expand toward mobilehome parks and resident deals.  Pretty good terms in the past, so they are well worth a look.

FANNIE MAE & FREDDIE MAC
Forget about these guys.  They are big players in mobilehome parks, but have a lot of requirements giving them a bias toward higher quality parks.  But, bottom line, they won’t do resident deals — so far.

HUD/FHA
HUD has done a few (very few) resident mobilehome park purchases.  But they have a great program for parks – long term amortization, fixed low interest rates, high low-to-value.  But complex and difficult.  Their terms mean deals can work with less equity and lower monthly payments.  However, HUD has been the only real lending source during the financial collapse, so they have large backlogs of pending deals, so timing of your deal is always an issue.  They also are unsure about mobilehome parks (since they do so few) and have experienced difficulties with multifamily projects (not mobilehome parks) owned by resident groups.  Makes them nervous.  (They are not willing to bet their career on your deal.)   Bottom line, they are well worth a look.

OWNER CARRY FINANCING
Financing carried by the park owner is a delicate matter.  After all, you got to this point by acquiring his park by adverse condemnation – not a friendly process.  But if he is willing to provide financing, it could be the easiest and fastest method.  And the terms can be developed to meet both your needs and thus make him more likely to be interested.  However, remember the old saying, “The Lamb (that’s you) shall lie down with the Lion (that’s him), but the Lamb won’t get much sleep.”  You must have a good attorney so you don’t sign on to a loan that could come back to bite you.

We’ll talk about resident organization in a future Blog.

I’ll be in touch.

Deane

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