From:
To: jeevaeationggmail.com
Subject: 1220
Date: Wed, 06 Jul 2011 20:21:56 +0000
Sorry for the typo. The TD payoff would be $20,235,000 (current balance of $21,235,000 less the proposed $1,000,000
paydown).
1. The deal would be structured so Swanson cannot put the LLC that owns the house into bankruptcy without my consent.
2. Based on Moens' estimate of a sales price of $40M, if Swanson defaults, the upside is $9 million on $8.2 million cash in
(over 15 months).
3. There is downside only if the house sells for less than $32.3 million (gross) in the same 15 month period. This is the
gross sales price needed to return your cash plus interest.
4. 15 months is the period from your making the loan (12 month term) until the due date of the TO first (Oct 30 2012). This
allows a 90 day period of being in title before the first is due. There is a further 45 day play in the intercreditor agreement.
This gives us 135 days after you get title to find a buyer.
5. Finding a buyer at $32.3 million (gross) in that period takes you out with all interest due before TD can act.
6. We can increase comfort level by requiring an offer above some amount to be accepted (the amount to decline over
time) and substituting Moens as the broker.
As to Swanson's ability to put the LLC owner of the property into bankruptcy:
He could not seek LLC bankruptcy protection because the LLC operating agreement would require unanimity (of members
and managers) to do so and I would immediately upon funding become both a manager and a member. I would not agree
to seek bankruptcy protection. On any default, Swanson would cease to be a manager. We plan to add provisions to the
LLC operating agreement specifically authorizing me as manager to convey the property by a deed to the second
mortgagee on any default. I consulted 2 lawyers who feel comfortable with this.
Time to Foreclose
None, since I would as manager have power to convey to the second mortgagee.
(What I was talking about as a taking a year was the case if TD tried to foreclose. TD's mortgage does not contain any of
the techniques described above. Nor does it contain provisions regarding waiving/dissolving the automatic stay. Given that,
and the backlog in foreclosure cases, I estimated a year for TD to foreclose if Swanson resisted. Our dots would be
different.)
Further, since Swanson and his wife are guarantors of the first, there would be damaging consequences to them personally
if the LLC sought bankruptcy protection since TO could always enforce their guaranties causing their other mortgages (on
their house, lot and other property) with other banks to go into default.
Upside:
Upside I understand as the proceeds on sale of the house less the first mortgage of $20,235,000 plus your cash investment
of $8,200,000 (excluding the $1,800,000 interest due you but not funded). Your cash in would be $8,200,000. Your
investment would increase to $28,435,000 if you had to pay off the first. Obviously, the house should be discounted and
sold quickly before the Oct 30, 2012 due date of the first.
If you sold at $35 million (a number we discussed over the weekend): then pay off the first and pay closing expenses of
$1,800,000 (4% commission, $245,000 doc stamps, $150,000 legal and title), then there would be net cash proceeds out
of $13,015,000. Based on cash in of $8,200,000, this is a profit of $4,815,000 over a 15 month period - a gross return of
58.7% or 46.97% annualized.
If Moens' view that he could get $40+ million is correct, then expenses of sale would be approx $2,200,000 and the
proceeds after paying off TD would be $17,565,000 on $8,200,000 (actual cash invested) or a $9,365,000 gross profit over
15 months - a 114.2% gross return or 91.36% annualized.
Downside
In order to return your capital of $8,200,000 invested plus an 18% return (calculated on $10 million equivalent to 21.9% on
$8,200,000) of $2,250,000 over 15 months, you would need $10,450,000. Covering this amount plus the $20,235,000 due
to TD requires net proceeds of $30,685,000 which (assuming 5% expenses) indicates a gross sales price of $32,300,000.
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This is a $7,700,000 or 19% discount off Moen's estimate. Based on what McCann tells me, he has buyers (including Pat
Camey) who would buy it in the low $30s now as an investment.
If loan performs:
18% on face amount of $10,000,000 (including $1,800,000 interest).
Negotiate 2 or 3% of gross to APR We could discuss how this is divided. Negotiate a minimum and no cap.
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