Despite my earlier pessimistic outlook for this deal coming to fruition, it appears it now stands a good chance of happening. There is a group of investors that will be coming in to fill the funding gap that the loss of the mezzanine loan created. They still have to raise the money from their investors, but they have analyzed the deal and have a "high confidence" it can be done.
I know some readers don't feel this is a good deal. Everyone is entitled to their own opinion, of course, but it has been pointed out that the setup of this investment has some significant advantages over other similar investments by other groups. The principals of this project have structured it so that the bulk of the cash flow goes to us investors - the 9% preferred return. The principals have not marked up the purchase price of the property and do not earn a commission on the purchase price. They charge a 2% fee simply for their time and effort in putting this together. Further, after the 9% return to investors, the profits will be split 50 / 50 between the investors and principals. However, if the annualized total ROI drops below 20%, the profit split changes to 70 / 30 in favor of the investors. In short, the principals make much more money if the deal performs as they projected.
Of course, the biggest point of dispute is how accurate those projections are. If there is no profit, no one gets anything. While some people don't think the projections are realistic, I trust the principals and their knowledge and experience in this area.
Escrow is now set to close at the end of April. I look forward to that happening!
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