How to pull equity out of property owned free and clear, but has no cash flow?
Hi CRE Community,

Is there some sort of line of credit like with stocks, but for commercial real estate? Looking to pull some of the equity out to purchase other properties.  We have another property that does have cash flow that is owned also free and clear, so we prefer not to "touch" that if we don't have to unless it provides better terms for like a small asset/portfolio loan?

&amp;#x200B;

TIA!
[{"id": "hy6k2na", "text": "Can you do something to the property to make it generate cash flow?", "replies": [{"id": "hy6lxb0", "text": "We do have it listed for lease with a broker who represents some national credit tenants (Chick Fil A, Walgreens, Oreilly Auto Parts, US Bank, etc.), but in the mean time, we want the ability to pull out some equity even if it was 35%-65% of the \"as-is\" value which is somewhere between $3-$4 million. Once it's leased out, we are expecting a selling price in the range of $6-$8 million, so we just want to have some extra cash for other purchases while we wait for the leasing situation to play out.", "replies": [{"id": "hy6o0uk", "text": "If I were you, I'd be patient and wait until it is leased out.", "replies": [{"id": "hy6r5b3", "text": "He\u2019s right. You\u2019re gonna end up with a hard money guy that owns your building when leasing takes longer than anticipated", "replies": [{"id": "hy6y1o9", "text": "I agree with both you and uiri. That is the approach we've figured, but weren't sure if there were other alternatives. Appreciate both of your concurring opinions!", "replies": [{"id": "hy7cjqv", "text": "Depending on the property and the lease structure you may need some cash to get the lease completed. TIs and broker commissions", "replies": [], "depth": 6}, {"id": "hy8amcm", "text": "You're not going to end up with a hard money guy unless your credit sucks. Go to a local bank or credit union.  Tell them you want to pull equity out, they'll do a blanket based on your score.  Will it not be as good as if it was leased, no. It will not. But it certainly won't be hardmoney if you have good scores.", "replies": [], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hy6lrvf", "text": "You could probably do a hard money loan, just be careful that you don't burn the money and then lose the property lol.", "replies": [{"id": "hy6oc5e", "text": "Looked into hard money before, but those terms are kinda up there xD! Never understood why banks would like to lend for stocks on a pledged asset line (assuming non-dividend stocks) when on a bad day(s) like recently would force the sale of the collateral vs. real estate which isn't that volatile in a daily market fluctuation basis and doesn't have a similar product.", "replies": [{"id": "hy6y6xp", "text": "Equities allow real-time price discovery (or, at least, during pre-market, market hours, after-market, and even futures).\n\nEquities allow for real-time MONITORING of said position.\n\nEquities allow lenders to perfectly assess your debt:equity ratio, in real time \n\nEquities are the most liquid asset, second only to cash, and can be instantly liquidated in the event that the debt:equity puts the lender at ANY risk of losing even a penny. \n\nReal estate is notoriously the most illiquid asset class. \nReal estate is also a lengthier process for valuation; often times taken upwards of 6-12+ months for true price discovery\n\nReal estate is incredibly easy to devalue; you can build the wrong thing, dump waste, etc. that would diminish it\u2019s re-sale value. \n\nThere are innumerable reasons why lenders give out money much more easily for stocks vs. real estate. Most importantly - risk.", "replies": [], "depth": 3}, {"id": "hy741yy", "text": "There was.\n\nThen lenders lost shit tons of money lending on paper \"equity\" exactly what you're referring to; the net present value of a not-yet-existent stream of cash flows. \n\nSo the bet is can you get it leased, at the rate you anticipate, in a reasonabe time frame? Remove any leg of the stool and that $8 million value falls over. \n\nWhy would the lender take a 3 leg parlay without some serious juice?  Hence those hard money terms.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hy6nl7y", "text": "Why doesn\u2019t it have cash flow?\n\nSounds like a terrible asset.", "replies": [{"id": "hy6z47j", "text": "It\u2019s an $8 million asset.", "replies": [{"id": "hy704eq", "text": "It doesn\u2019t cash flow because it is worth $8 million?", "replies": [{"id": "hy79w7p", "text": "Could be a property that is worth $8 million even as vacant land or as a building in poor condition if it is in a prime location.  Location, location, location. In those circumstances the cash flow could be zero or minimal but the property is still worth $8m to someone who can make better use of the space and increase the value to $20m.", "replies": [{"id": "hy8tnql", "text": "Could be, but all they said is that it has no cash flow.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}, {"id": "hy7a683", "text": "Would someone buy it if you listed it for $8 million at it's current condition?", "replies": [], "depth": 3}], "depth": 2}, {"id": "hy94g5m", "text": "There's plenty of reasons a quality AAA assets don't cash flow...", "replies": [{"id": "hy9544r", "text": "Plenty of AAA assets that don\u2019t cash flow?  Like undeveloped land?  I wouldn\u2019t describe that as AAA.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hy6zar8", "text": "Here are a few options to pursue:\n\n1) Loan secured only by the non-income producing property with a one-time remargin provision and subject to achieving a minimum DSC within a designated amount of time (24 months, 36 months, etc). The remargin provision provides the flexibility to easily increase the loan amount once it is leased. \n\n2) Loan secured by both properties with a release provision similar to the terms described above. Once the non-income producing property is leased and can meet a minimum DSC, the other property can be removed as collateral on the loan. \n\n3) Find a bank willing to do a loan based on your overall \u201cglobal cash flow\u201d. The initial underwriting/processing fee will be a bit pricy (up to 1.5% of the loan amount) because, frankly, it is a huge pain in the ass to perform a GCF analysis for a loan that small. Local small banks are your best bet with this option.", "replies": [{"id": "hy6zos2", "text": "Agreed- I\u2019d do something like this all day at my bank", "replies": [], "depth": 2}, {"id": "hy720nd", "text": "&gt;kcdc739\n\nWhat a day to be graced by the one and only SF\\_Lady presence xD! This is the type of feedback I was looking for and greatly appreciate it. Any recommendations for options 1 and 2 in the PNW  and how to efficiently structure said proposals (You can PM me for privacy)? Thank You!", "replies": [{"id": "hy75gca", "text": "Feel free to PM me if you want to run the numbers with me.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hy766jq", "text": "Discount sale / leaseback with a buyback agreement.  \n/ Have a buddy buy it for a deep discount.  \n/ You nnn lease it back\n/ Buy back for a predetermined price later.", "replies": [{"id": "hya7jt1", "text": "Offer:  $3m cash for your asset. You lease back for $35k a month plus nnn.  You buy back the asset in 36 months less for $3.1m.  \nYou pay closing fees on both transactions.", "replies": [], "depth": 2}], "depth": 1}, {"id": "hy8xhvg", "text": "I recently was in the same situation.\n\n&amp;#x200B;\n\nRefi'd on the value of the real estate. No problems, was just as simple as getting a loan on a asset with cash flow.", "replies": [], "depth": 1}, {"id": "hy8yze1", "text": "Can\u2019t you just cash out refi if you have the cash flow elsewhere?", "replies": [], "depth": 1}, {"id": "hy9hzkx", "text": "Go to a local bank with a thought of business plan and a path to lease up. Make an ask for initial proceeds + future funding for TI/LC. Build a 1-2years debt service reserve into your sources and uses. Day 1 the loan will be ~50% LTV and will increase to 65% as you draw down the TI/LC funds. We call these funds \u201cgood news money\u201d. Lenders are happy to put more money out if you come to them with a market lease with a market TI.", "replies": [], "depth": 1}]