The property was a mixture of multi-plexes, and the Seller’s motivation was to sell the portfolio as one to simplify their exit strategy. The Buyer had to find a financial institution (a credit union) that was willing to place four separate loans on the portfolio so that in the future, they could trade pieces of the portfolio without the limitation of one loan lumping all the properties together. The Client was using 1031 funds to trade out of two existing properties and was looking for a property in Salem that they could upgrade to.
One of the properties was in a flood plain, and the insurance cost was significantly more than expected in underwriting – in fact the insurance in total was 100% more than what the Seller was paying. The inspection revealed that three of the buildings had major foundational/structural problems and three of the buildings needed to be re-reroofed as well. The Seller agreed to offset some of these expenses by placing some money into escrow to help fund capital expenses. The buyer understood that there were going to be significant capital expenses involved in purchasing this portfolio. For example: of 37 units, 15 of the units needed new water heaters, mold was found in attic spaces, and two of the buildings needed extensive lead-based paint remediation.
Level one environmentals were ordered for the portfolio, and in two cases – the bank was concerned about pollution and tank removal. Luckily, the Seller had been involved with the property for over 50 years and was able to find a photograph that showed removal of an underground storage tank, and this satisfied the lender.
What made this deal work was patience and organization by both the Seller, the mortgage banker, the lender, and the accommodator.