« Conservatism vs. Freedom | Main | America’s Youth »
PawnLand
By John | July 28, 2009
Pehrson Capital Corporation is announcing a new investment program, designed to take advantage of the lending malaise currently gripping the real estate industry.
After lending recklessly for several years, the pendulum has now swung the other way. Credit-worthy borrowers are unable to secure funding for worthwhile projects. Banks take deposits and hold on to them, instead of recycling the funds in the local community. Some of these would-be borrowers own free and clear assets, such as real estate. Under normal lending circumstances, this real estate would serve as collateral for loans. However, banks are not lending.
So, why don’t these real estate owners simply sell their properties? Without lenders to support the market, and with prospective users of these properties unwilling to expand their businesses in this economic environment, these properties can only be sold at a steep discount. Owners are unwilling to take such a “hit” on their properties. So, nothing happens. Worthwhile projects go unfunded. Valuable real estate sits idle, benefiting no one.
That’s where Pehrson Capital Corporation (PCC) comes in. PCC matches investors seeking superior returns on secured investments with these worthwhile projects.
Here’s how it works:
Let’s say Mr. Brown has a building under construction, but his lender refuses to advance any more funds. Mr. Brown has a tenant for the building, but he lacks the funds to finish it. Once finished and under lease, Mr. Brown can get a loan secured by the building, but he needs about $100,000 and time to finish the building.
Let’s also suppose that Mr. Brown owns some development land free and clear. Even in this distressed market, that land should be worth $200,000. He knows this land will be very marketable once the economy recovers, so is reluctant to sell it at the steep discount necessary to attract investors.
Mr. Brown approaches PCC, seeking funding. PCC matches Mr. Brown with an investor. After some negotiations, the investor agrees to purchase Mr. Brown’s vacant land for $100,000, lease it back to him for a little more than the carrying costs on the land, and gives Mr. Brown up to two years to re-purchase the land from the investor. During the first year, the re-purchase price is $110,000. During the second year, the re-purchase price becomes $125,000. And after two years? The re-purchase option expires, and the investor is free to sell the land at whatever price he can get to whoever he wants to sell it to.
Mr. Brown is confident he can utilize the proceeds from his vacant land sale to complete the building, lease it out, and obtain new financing secured by the building within one year. Therefore, he is willing to sell his vacant land at a steep discount, knowing he can buy it back. Even after paying the markup and some closing costs, this is a good deal for Mr. Brown.
And the investor? He receives a return several times greater than keeping his money in the bank. And if Mr. Brown doesn’t re-purchase the land? He has an even better deal. He bought property at 1/2 the current market price.
PCC is acting as a real estate pawn shop. If you, or someone you know, is seeking an opportunity like this, you may contact me at jlpehrson@mac.com or by calling 616-240-1919.
Topics: Rural Land Investment |