Handling Negotiations For A Busy Developer
(This is actually a post by nwms herself not nwmsotherhalf)
A mortgage broker friend of mine told a developer client of his that I do short sale negotiations. As it so happens, this guy is in the middle of a multi-million dollar transaction & too busy to finish another smaller deal that he had already started. The seller is in bankruptcy. These are 2 4-plex units on 2 separate tax lots (I know that's not technically commercial - but was hoping for the commercial pros' expert opinions nonetheless)
He wants me to do all the photos, research, negotiations, etc. to try to buy the property at a discount at the meeting of creditors that will happen in September.
I have several questions...
1. First, I want to make sure I get paid for the work I do. Obviously there needs to be some kind of contract to protect my work. Are there any standard form I could find online and adjust to this scenario or should I just bite the bullet & have my attorney write something up for me? (I already know what you guys are going to say...)
2. Have any of you ever done this type of negotiations at the bankruptcy table as opposed to just as a pre-foreclosure?
3. Is it possible to expect the same large discounts on a commercial property short sale that I could go for on a residential property?
4. By the way- I think the guy is nervous that he's not going to make a fantastic profit. There may be up to 150K profit in the deal. But he told me today that I could have all the profit. I just have to work to get it. This seems a little weird to me. Maybe he doesn't care just as long as he doesn't lose money?
1). I think you are right. This looks sufficently custom that I don't think you are going to find a stock form. That doesn't necessarily mean paying the attny. a fortune. Write the agreement yourself, pay the attny to review it.
2) I'm afraid my only experience in this matter was from the other side of the table.
3) Yes and even larger. The difference is that there are fewer players in the game.
4) On this one I am more than a little confused. How is your guy involved already that he could possibly loose money?
It turns out, that he needs to make at least 180K to make up for a loss on another deal. However, I have done the numbers myself - not just going on his word and it appears the there is about 300+K profit potential in the deal.
How much should I charge him to negotiate the discount, manage the general contractor for the condo conversion & help him sell them? $100K? Are there any typical percentages commercial people use? This is my first deal anywhere close to being commercial.
So his prior "keep all the profit" has turned into "keep any profit left over after I make up my losses from another job"? This does not bode well. I personally dislike people who don't communnicate well and fully about the nature of the transaction.
That said, I assume that you know this guy to be more-or-less reputable. Still all the more reason to have your agreement and in writing.
How much should I charge him to negotiate the discount, How much should I charge him to negotiate the discount,
I'd probably figure out how many hours the prep work would take, figure $100 per hour and then translate that into some percentage of the discount and double it. So if you thought it would take 10 hours, for example), I'd want $1,000. If the property was indebted $500,000 and you thought you could get it for $250,000 that would be a fee of 4% of the discount. Except I'd want to get at least 8% because I did it "on the come" and charged nothing if the deal didn't happen. So I'd start off asking for 12% and figure to negotiate down to the 8%.
manage the general contractor for the condo conversion & help him sell them?
The management fee should be around 5% of the project costs the sales commission likewise. Rember to collect a commission on the sale of real estate you have to have a license.
That said I'd probably offer to split the deal with him. Forget his $180,000 that he lost on the other deal-- not your problem-- you're going to do all the work here, he's putting up the money. Split the profits 50/50.
Oh, by the way, the city is considering shutting these apartments down because of the trouble in the neighborhood.
The amount owed is about 632K. I'd like to get these for no more than 250K. Do you think this is possible based on the factors I've mentioned?