Peter Conti & Jerry Norton – Commercial BackFlips

If all you know about Flipping Commercial Real Estate is the time proven method of assigning your purchase contract, then keep reading to discover all three ways to flip commercial real estate.

This has got to be the most exciting time in my 20 plus years of real estate investing. The distressed commercial market along with a backlog of commercial properties with over-sized loans has created an environment where lenders are dumping commercial properties off their books at “Give Away Prices” that are vastly lower than anything I’ve even seen.

Commercial real estate still has value. We all drive by, stop in, shop, do business in and see our dentist and doctors in commercial real estate. Commercial real estate is a necessary asset to our society that will always be needed and valued. The problem is that the over-heated real estate market created situations where good commercial properties, with well run, viable businesses, were saddled with huge loans that were suddenly no longer affordable once the economy went South.

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The Solution

The answer has been elusive over the past three or four years. Commercial lenders chose to make multiple short term extensions on their loans on commercial properties rather than push for foreclosure. Lenders have shown us by their actions that in most cases, they DO NOT want to end up owning commercial real estate right now. Many lenders prefer to take part in a “Commercial Workout” where the loan terms may be modified, or the lender may accept a cash payoff and agree to walk away from the rest of the money owed to the lender.

The way this relates to us as investors… 
We are able to act as facilitators who bring the essential components of a commercial flip into place and get paid quite well for our efforts. The nice thing about this is that you don’t need to own or manage anything, just put the flip together and get paid!

My favorite method of flipping commercial real estate in today’s market is the Commercial Back Flip. There are two other ways to flip commercial property for those deals that you are unable to back flip.

The 3 Ways to Flip Commercial Property:

1) Wholesale Flip – get it under contract and flip your contract

2) Value Add Flip- get it under contract, find a tenant(s) or make other big changes to NOI and then either close and resell or flip your contract

3) Commercial Back Flips- Once you know how to get the cash to close these deals, the parties to a deal are:
– Commercial property owner in default
– Attorney fighting for the property owner
– Lender who wants to get out by reducing the debt or cashing out at a big discount
– You can be the facilitator who helps to find and put the deal together, it doesn’t even require any of your money.. Pretty cool.. huh..

4 Requirements for a Commercial Back Flip
1) Property must (almost always) be in default – (But it can’t be an REO)
2) Buyer (AKA the existing owner) must want to keep the property
3) Must be creating NOI – we use this to calculate TODAY’S value
4) Situation must be favorable for an exit lender to refi the bridge loan out after 6 to 8 months

Here’s an example of a recent Commercial Back Flip:

47 unit apartment – 95% occupied
loan $1.4
value $950,000
lender sold it to us for $400,000
We then sold it back at the closing table to the owner who was in foreclosure (with lenders approval) for $512,000

Next, we carry the payments for 6 months to meet the requirement from the refi lender.

Then cash in on $112,000 profit…. very nice…