Fractional Dutch Auctions of Commercial Income-Producing Real Estate Properties - TIC Plan Ownership Syndications

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Commercial Real Estate Sale-Leaseback

Commercial real estate sale-leasebacks are most commonly used in the commercial office, senior housing and retail industry groups due to their relative levels of predictability with respect to ongoing routine rental revenues.  However; the commercial real estate sale-leaseback creates some distinct disadvantages (due to its transaction structure).  The typical deal is underwritten on terms assumed to be:

  1. Construction Loan: NYSE Prime plus 125 basis points.

  2. Sale Price: equal to total construction loan disbursements.

  3. Lease Term: 10 year basic term and two (2) 10-year options.

  4. Lease Rate: typically 12% or a spread over NYSE Prime of 425 basis points, whichever is greater.

  5. Collateral: Usually there is a loan reserve of six (6) monthly payments as additional collateral.

  6. Recourse: joint and several, personal and corporate.  Cross-default applies.

The cost of the money is quite high and the incremental equity gains over the term inure to the benefit of the REIT.  Syndication financing calls for a sharing formula that is fair to both the developer and the investor group.

Please contact us with your questions and project proposals.

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Telephone: 832.659.5009

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