Archives for category: Real Estate

Dan and I are at it again.  Reaching for something that seems impossible.  We are going to try to purchase the building that Victory resides in – 4863 Shawline St – for $ 25 million and no money down.

Quick backstory. We’ve been looking for a building for some time that we could permanently house Victory Gymnastics in.  Being in Kearny Mesa, choices are generally slim given our needs and requirements (+10k sq/ft with +18 ft ceiling heights). Our broker made the off-hand remark that we could put an offer in at our current place.  I said why not. And would you believe it the owner is willing to entertain an unsolicited offer.  Normally large buildings go on sale for specific reasons at specific times.  The reason for a sale is often important to know and can give you leverage during price negotiations.  In this case, it just so happens that the family that owns the property is looking to liquidate all their assets in the next 5 years and move into philanthropy – perfect!

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There are so many factors, so many nuances, so many lessons learned from this whole endeavor it’s hard to pick, choose, and summarize the past year and a half.  I’ll do my best without boring you too much.

My first thought after reflecting on the process is the lesson of money being a tool.  You can buy money in the form of loans, meeting certain income requirements, credit requirements, and business requirements.  It has changed my mindset in terms of what is possible in the future for of my growing business empire.  Any project that we’d want to do (business acquisition, real estate, expansion, new location, etc.) can be done by looking at how much money we’d need to get it started, how much real tangible money we would need to raise, and how much money would we would then be making moving forward.  The size, scale, and scope of those projects has dramatically expanded because money or the idea of needing money, saving money, raising money isn’t as intimidating as it was year and a half ago.

My second thought relates to the business of real estate.  With no formal education in the industry, I have now gone through a lease negotiation, a lease renegotiation, and a commercial real estate purchase.  While there may be standards in terms of processes, terms, and forms, it’s most interesting to understand that EVERYTHING is negotiable in the world of real estate.  Not to say there are no laws but lease contracts, purchase agreements, loan terms can all be negotiated and renegotiated and changed, extended, and even cancelled.  Generally in life, you walk into a grocery store, pick your products, and pay on your way out.  Not so in real estate – anything is fair game.

My last thought is what this project realistically does for myself and my brother as businessmen, as financial entities.  In no small way, this project legitimizes us.  For the past 3 years, we’ve had to battle realities and preconceptions of bad credit, large outstanding student loans, lack of experience as new entrepreneurs, young business owners, etc.  Everything we’ve needed to do has required a cosigner, a donation, some kind of help or extra step.  It would be naive to assume that all goes away. However, we are much more able – now – to stand on our own two feet, both through literal financial records but also by our growing reputation of success.

I speak a lot about the game of business and the game of life.  I believe that anything can be accomplished with enough work and creativity.  My hope is that this particular acquisition makes it that much easier to take the next steps.

Stay tuned for more.

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Picking back up on the timeline.  There was about a 6 month process of going back and forth needing more paper work, more signatures, more explanations.  It was, in my humble opinion, extremely bureaucratic, arduous, and overly complicated.  If it wasn’t for sheer determination on our parts, this project would never have finished.  Here’s the kicker.  Once the initial application package was assembled, stamped, and initially approved, we were sent to the underwriter and had to start the whole process over again.  I’m not exaggerating when I say in my first phone call with the underwriter – 6 months after dealing with loan manager – they had no clue who we were as a business.  Asking simplistic questions about what type of business we were involved in and who we were.  It was beyond frustrating.  Having only done this once, I don’t know if this is commentary on Wells Fargo or the entire industry in general.

By this point, we ran up against the December 31st.  This turned out to be a big deal because once we hit the new year, everything needed to be redone.  2012 taxes needed to be included in the application, updated projections, and updated financials all because the process was taking so long.

Luckily, we had an understanding seller.  By this time we had a signed purchase agreement in place – a requirement for the loan application.  This is relevant because in the purchase agreement there were escrow date requirements, due diligence periods outlined, and a closing date specified.  The loan application process was taking so long that we had to continually push these dates back.  It felt unprofessional and was slightly embarrassing to have to go back to the seller and ask for more time over and over again.  The seller stuck by us, can’t say I blame him.  He was getting more than the appraisal during one of the worst real estate collapses in US history.

The back drop to this process was Wells pushing the 7a loan on us, trying to work the system into qualifying us for the 7a loan.  In the end, almost 9 months into the process they finally approved us for the 7a loan with the  unexpected requirement to put an extra 10% down! An extra 10% on 1.5 million dollars is a lot of money.  For Wells Fargo to spring this drastic change on us after 9 months of false promises and expectations was absolutely demoralizing.  Enter the CDC Small Business Finance.

The CDC is the distributors for the SBA 504 loans.  In the 504 loan, the loan is made up of three parties: the CDC, our down payment, and a 3rd party bank.  Normally, it takes work to find that 3rd party bank.  We had one already in Wells Fargo.

Of course, this meant filling out the CDC’s loan application – you know that package that took us 6 months to prepare for Wells Fargo.  With the CDC it was done within a week and an approval made within 3 weeks after that.  This is not to say that there weren’t hiccups along the way with them.  My brother and I both had an extra form and written requirement to explain our past criminal record.  I don’t feel the need to go into details other than to say they were misdemeanors and – more importantly – we learned that 25% of loans the CDC gives out (which remember are direct SBA loans) are given to people with a past record. An extremely interesting fact.

With our approval in with no additional financial requirements  after a 14 month process, we signed, we celebrated.  We are officially property owners.

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September marked a milestone achievement for my business.  We finalized the purchase of the commercial warehouse space we occupy.  In some respect, I’ve achieved the American dream.  I own my own business, I own a piece of property/land, just missing the kids and the picket fence.  The process in whole took about 2 and a half years, I’ll do you a favor by condensing it down to a few paragraphs.

We first broached the subject of buying the building during renegotiations for extending our lease.  We quickly discovered that businesses under 2 years of age were consider high risk and carried significantly more down payment (read +20% down).  The journey truly took off the day after we turned 2 years old – about a year and a half ago.

There’s this tricky balance I’ve discovered with most big projects – money vs opportunity. Do you have the money to buy vs does the owner want to sell? Same can be said, for business acquisition, buying a home, etc.  It’s tricky but at some point – like everything – you just have to jump in.  We decided to approach the owner and start the conversation.  At the same time, we began approaching banks, stopping into 3 banks at the same time and speaking to their business lending departments.  I was quickly blown off by 2 of the banks.  It wasn’t that we didn’t qualify;  they just stopped returning phone calls and emails.  Hard to tell if it was bad business practices, they were lazy, or if they weren’t interested in the deal.  However, the third bank (Wells Fargo) quickly started pursuing me. I say pursuing, in retrospect I’d probably characterize it as selling.  An early lesson here is to truly appreciate that there is a lot of money to be made lending money.  It’s difficult to realize in the moment because you’re not even sure they’re going to lend you money at all, let alone lend it to you at a good term and rate.  Beggars can’t be choosers, given the same position it’s hard to say if I would have done anything different.

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