How Closing with Public Dollars Can Be a Game Changer
The purpose of this article is to provide you with some insight into a lesser known world of real estate professionals seeking funds and opportunity from the government. Imagine investing in real estate deals using “other people’s money”. Sure, you hear that all the time, but what if the “other people” include local, state and federal government agencies?
Incredibly important to your next transaction as it could help you get need transaction funds that get you started or close the necessary gap in your project budget. The existing case study is going to provide you a glimpse into one investor, who uses “other people’s money” all the time to balnce his project budgets.
The Case of the unfinished office building
Recently, a client was asked if he would consider allowing a global manufacturing company, move a portion of their headquarters into his unfinished office building. This is a no brainer right? Not if the rehab of the building is incomplete and funding from investors is slow to trickle in!
What if the funding could be expedited by the local municipality? In other words, what if you could get the city to step up to the plate and help with the funding?
What? The City would become an investor? Sure, and perhaps without paying them back!
This is just one example of potential deals that we work with every day at Government Deal Funding.
Recently, when the I was asked to participate and educate folks on my business, I was ecstatic that anyone would want to listen. The work we do includes:
- Changing downtown centers,
- Providing affordable housing,
- Addressing social service facilities,
- Caring for elders and building business in the current economic climate.
We understand the needs of the developer or real estate professional and we understand the political needs of government.
Back on Point: Why would the city become an investor in this property?
The City in the above case study is interested in attracting this global manufacturer to its city center because (i) it will provide new opportunities for economic upturn at service/restaurant locations and (ii) it will bring more clientele to its burgeoning downtown. By occupying space the company now limits the supply and creates a uptick in rents in the area. This creates a larger value ultimately bringing in more tax revenue.
So the question remains:
Does the City have an incentive to provide cash to the developer to facilitate this move?
The developer purchased this property for $160,000 a few years back. The building is 22,000 square feet and this global manufacturer is looking for 9,000 square feet of space. An additional 5,000 square feet will be used by a farmer’s marketplace and co-op food center for area growers. The balance of the space will be individual offices. Work has been slow as funds were leaking in piecemeal. GDF then took a look at the opportunity.
- We looked at the location of the building, noting the census tract and its location to necessary services.
- We noted the historic integrity of the building and knew of federal programs that aim to preserve said stylistic properties.
- We noted the rest of the downtown space and its lack of tenants and the ability to purchase more.
- Lastly, we took note of the availability of funds from the City and County to accomplish the speedy outlay of funds to develop this deal quickly.
Here’s the bottom line…
The above case study illustrates the importance of maintaining a relationship with local governments, but also demonstrates the availability of funds in so many areas of real estate. Most investors are playing around with single-family flips, but my client noted that other areas are just as, if not MORE, lucrative!
It doesn’t have to be office buildings. It could be self storage, small office, industrial, affordable housing or niche markets that create jobs. They key is to provide your audience (those you are asking for funds) a reason why your project will change the neighborhood.
Some final thoughts
As I ramp up some lessons for GFS, I am humbled by the ability to share these relevant and very current case studies from around the country. I relish in the fact that people learning real estate are hungry for funding and will do what it takes to make deals happen.
As we continue this journey of understanding public funds and their availability, look at the deals you have on the table. What do you need? What would it take to get the deal to its “highest and best use?” In return, what benefits are you providing the local political entity?
Think about the answers to these questions as we look to dive into specific deals going forward.
Action Steps – Do It, To It!
STOP: Kicking tires and get involved in Real estate
Identify: projects that can change neighborhoods, downtown centers or redevelopment zones.
Look: For Projects that provide short-term and long-term jobs.
Change: Your focus towards matching public and private funds for your next deal.