To acquire the property, we invested $500,000 and secured $2.5 million in bank loans. Further, in order to finish going through the City Planning process, we acquired a 2nd, $500,000 mortgage from a private lender. So, all in all, we had $3.5 million into the project.
It took us 1 ½ years to go through the City’s Planning process. We jumped through hoop after hoop, paying for engineering plans, architectural drafts, construction bids, etc.
We had the support, and input, of the Community...and when we received City approval, almost 2 years later, we had a $40 million Development project on our hands and a $5 million projected profit for ourselves.
In the next 3 months, we had banks lining up to offer us construction loan with incentives. In that short time, we had secured deposits from 50% of our Buyers for the condominiums and all of the commercial space.
Then...overnight...the bottom fell out. It was the Spring of 2008.
Our Construction lender offers went away.
Our condo buyers needed their deposits back to payoff other real estate calamities.
Fortunately, the property we had bought was a strip retail building and was 85% occupied...and the rents just covered our monthly bank loan payment. So, we decided to tuck our tails and just wait for the recovery.
However, fate had other plans for us…
1) The City soon made it clear that our Development Plan would not be re-approved when it expired in 2 ½ years.
2) Our bank loan was up for renewal and the bank told us that interest rates were going up and that we, or our private investor, would have to advance, out of pocket, amounts to cover any decrease in the value of the property.
-But, at that moment, we could still make ends meet...just barely.
-We tried to negotiate with the bank to keep the current collateral requirement and interest rate, but they refused.
-We offered to sell out to our 2nd lender and stay on to manage the property, if they would just keep the current interest rate. They refused...and countered with a demand that the 2nd lender put forth a $100,000 deposit to cover the drop in value of the property, if he didn’t want to lose his investment.
This was August, 2008. I saw the handwriting on the wall.
-I knew this downturn was just starting. And, as time went on, our property value would decrease.
-And, we’d have to start from scratch with a new plan, once the economy turned.