How Closing With Public Dollars Can Be A...

It’s a great day here at Mogul! We’ve got yet another fantastic Mogul Faculty Advisor, Sean Carpenter.

We’ve asked Mr. Carpenter to provide a lesson on deal funding. As you probably know, deal funding is one of the critical pieces in an investor’s tool belt. If you don’t have deal funding in place then you are dead in the water.

Sean focuses on a very specific, yet little understood aspect of investing that’s a highly powerful niche – government deal funding.

This, Moguls, is Sean’s specialty. He has helped loads of investors tap into government sources for funding that most people don’t even know exist.

Sean is the President and CEO of Shamrock Development Associates, Inc., a full-scale development, consulting, public relations, corporate marketing, and asset/ property management firm. Basically, he knows all about public programs and loves teaching other investors his ninja secrets that can help secure government funding.

Sean has loads of real-world investing experience having previously been an Acquisitions Officer, Asset Manager and Project Manager, and he was even on the staff of a Massachusetts State Senator working with constituents on public policy issues. Sean also serves a number of businesses, organizations and nonprofit agencies in advisory, financial, organizational and business management roles.

So, we’ll just say Sean is definitely a welcome addition to the Mogul Team!

We’ll let Sean kick off his inaugural lesson – with even more great lessons from him on the horizon…

Using Other ‘People’s’ Money

Hey Moguls, Sean Carpenter here…

The purpose of this lesson 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” were local, state and federal government agencies?

Intrigued? Keep reading…

This may be incredibly important to your next transaction as it could help you get needed 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 balance his project budgets.

Let’s dig in…

The Case of the Unfinished Office Building

Recently, a client was asked if he would consider allowing a global manufacturing company to 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!

But consider this: 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?

So, the City would become an investor?

Yep, and perhaps without paying them back.

Truth be told, this is just one example of potential deals that we work with every day at Government Deal Funding (GDF). Recently, when the guys at Mogul asked me to participate and educate folks on my business and how we do what we do, I was ecstatic that anyone would want to listen. The work we do includes:

Changing downtown centers;
Providing affordable housing;
Addressing social service facilities; and
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 an uptick in rents in the area. This creates a larger value, ultimately bringing in more tax revenue.

And in case you didn’t already know, cities and counties love new tax revenue. ;-)

So the Question Remains…

Does the City have an incentive to provide cash to the developer to facilitate this move?

Well, let’s look a little closer at the pieces of this particular puzzle and see how they fit together…

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…

Based on the case, we could make for very tangible incentives to the city. Yes, this was actually a fantastic fit for leveraging municipality funds. And frankly, this is an arena of deal funding most investors are flat-out clueless even exists.

This 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….

The 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 more lessons for Mogul, 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. More government deal funding lessons to come!