First National helps the client replace his partner after last minute parting and structures financing inventively to provide maximum leverage at a lower cost.
Key idea: network, ingenuity, relationship, persistence
First National tapped its network to find a professional partner interested and able to step in after the last-minute dissolution of the original partnership and then got the deal done with an inventive financing structure.
What was the client trying to achieve?
The client was in the process of purchasing a $31 million, high rise apartment building in downtown Montreal. The building had existing debt, with a first mortgage from one lender and a second mortgage from First National.
Initially, the client had a partner. The two purchasers were trying to negotiate their partnership agreement as they were trying to close on the purchase of the building. Unfortunately, approximately one week prior to the closing date, one of the partners pulled out, putting the transaction and deposit money at risk.
“The remaining purchaser was a long standing client of First National’s, and he was left hanging with a major liability,” says Robert St. Pierre, Assistant Vice President, Commercial Financing. “Before I could even contemplate the financing, I was determined to help the client solve his partnership issue.”
Putting the deal together
To address the partnership issue, St. Pierre tapped his network to find a proper professional partner to step in to the deal. He was successful in finding the right fit for the client and the deal. With the new partnership solidified, St. Pierre renegotiated with CMHC to account for the new partnership, assisted in negotiations with the vendor to adjust timelines and the closing date and ensured the right modifications to First National’s dates and legal structure.
Structuring the financing correctly was the next stage. “The client had two existing mortgages, one with First National and one with another lender. Most of the other lenders recommended refinancing the First National second mortgage, but I had other solutions in mind to get the maximum leverage amount at a lower cost,” says St. Pierre.
In the end, St. Pierre proposed the refinancing of the first mortgage instead. By doing a new CMHC loan, it forced First National’s existing mortgage into first position and the new loan became the second mortgage. It was an inventive way to approach the financing and ended up saving the client a significant amount of money.
Why First National?
For St. Pierre, persistence and ingenuity are a powerful combination. For this deal, St. Pierre stayed committed to finding a solution, even after the dissolution of the original partnership. And he used his network and expertise to find inventive solutions to both the partnership and financing issues.
“In his mind, the client had written off the $750,000 that he had invested in this transaction,” says St. Pierre. “When most other lenders would have walked away, I convinced the client to stick with the deal because I was confident that we could save it.” That persistence paid off. The deal was successful, and St. Pierre has become the client’s go to expert for any real estate matter.
In terms of financing, ingenuity played a critical role. No other lender had proposed moving the existing First National second mortgage into first position. Doing so saved the client a few hundred thousand dollars while still getting him the maximum leverage that he was seeking.
“I had the experience, contacts and knowledge to overcome the obstacles that surfaced in this deal. But more importantly, I’m always encouraged at First National to be resourceful and inventive and look beyond the traditional way of doing things. As a result, I was able to save the client’s investment and help him save and make money.”