Group of Neurosurgeons Get Smart About Seller Financing

When a group of neurosurgeons started anew outside of Atlanta earlier this year, they were surprised to find an office market ripe for investment. Instead of leasing like they'd done in the past, they wanted to buy a particular office building that perfectly suited their needs.

The problem? Banks don’t just hand out multimillion dollar loans to new businesses.

But unlike neurosurgery, the solution to this particular case was surprisingly simple.

Thanks to some smart dealmaking and a bit of happenstance, the owner of the building that the group had been eyeing — 454 Satellite Blvd in Suwanee — had no debt on the asset and was willing to finance a three-year loan for the total sale price, which ended up at $3.2 million.

Zenith Group ATL, the collection of doctors comprising the purchasing LLC, had previously been tenant clients of Ryan Shirley, the buyer broker on this deal. But their path to property ownership was about as straight as the spines they help surgically align. They had once been some of the leading neurosurgeons at Northside Hospital and had also started a practice that had been purchased by a larger network last year. Untangling their enterprises from the larger entities even came with some legal snares.

When they struck out again on their own in order to expand their network to several new markets, Shirley started getting them situated with a new lease. “We found a building that was going to be perfect for them from a leasing standpoint,” Shirley, the president and principal broker of Shirley Commercial Real Estate, told LoopNet. But when Zenith saw that 454 Satellite Blvd was up for sale and listed for a “price subject to offer,” they asked Shirley about buying it outright, to which he replied: “Sure, but …”

"I told them they probably wouldn’t have enough operating history from the bank’s standpoint to justify a loan for a deal this large."

Ryan Shirley, Shirley Commercial Real Estate

It was not going to be easy to finance, Shirley told them. Even though all of the doctors involved have been practicing surgery for some time and could potentially bring cash to the table, Shirley said, it would still be difficult for the LLC to get a Small Business Administration (SBA) loan or even a conventional bank mortgage.

“I told them they probably wouldn’t have enough operating history from the bank’s standpoint to justify a deal this large,” Shirley said. “But they loved the building, so one of the things I proposed to them was that the deal would be lot easier if it could be owner-financed.”

So Shirley and listing broker Patrick Hallwood, the Executive Director of KW Realty North Atlanta, went to the owner — who was doing business as Dejeet LLC — and inquired about seller-financing.

A seller-financed deal, also called owner-financing or a purchase-money mortgage, involves the owner of an asset signing over the property to the buyer and directly lending the buyer the amount needed to complete the transaction, instead of those funds being sourced from a bank or other financial institution. Owner-financing can be much faster and easier than a traditional loan since there are fewer closing requirements, but it’s relatively rare, since it means the owner must take on the debt risk themselves.

“Randomly enough, [the owner] didn’t have any debt on the building,” Shirley continued. “And right away he said, ‘yeah, I can do that. Let’s talk terms.’”

But what does the owner get out of it, other than the burden of risk?

Well, Dejeet “is a very smart investor,” Hallwood said, with more than $20 million in dispositions and nearly $26 million in acquisitions in the past five years alone, according to public records. Shirley believes he had done owner-financed deals previously, as he had paperwork ready to go that just needed to be modified with the details of the new transaction. “For motivated sellers,” Hallwood continued, “seller financing is a great alternative versus a 1031 exchange when there is still a major shortage of inventory on the market and very few ‘deals’ currently.”

Plus, in keeping with the traditional approach to owner-financed deals, Dejeet is offering the approximately 6% loan as interest-only. Being a balloon loan, the loan doesn’t amortize over its term, so the balance is due when the term matures — which in this case is three years. At that point, of course, the buyers can refinance.

Shirley also connected the buyers with a bank that will loan them their buildout costs. That loan will then “wrap” into the mortgage, he said. A wrap, or “wraparound” loan, is a junior loan that exists under the superior primary mortgage. That means that Dejeet’s loan is due first in the case of default.

“It worked out to be a great situation all around,” Shirley said. Zenith will also be collecting rental income, as the three-story, 19,000-square-foot building has two existing full-service tenants. In addition to a CPA on the third floor who just renewed for another two years, according to Hallwood, who is also their leasing agent, the tenant on the first will be moved to the third floor as well, though their lease expires soon. Zenith will operate the first floor as a surgery center and the second as a regular medical office.