Raising Private Capital

How does a developer go about financing a project from the ground up? Many use their personal wealth, but that is not always possible - and it is not the way that we intend to go with our artist live work development on South Henderson Street near the Rainier Beach light rail station.

I wanted to explain our business model, which is different from the owner-occupant model which is more typically used in a property management screening and with which my readers may be more familiar. Van Gogh Development Corporation is not an owner-occupant, but rather a developer of the property on Henderson Street. 

We will be raising private capital through a private offering syndication, and will create a separate LLC to close on this transaction (to be named something like Van Gogh Lofts, LLC). We have met with a top-notch SEC attorney in Bellevue, Greg Russell of PRK, to begin this process. I personally have raised over $2 million in private funds for previous real estate deals, which is why I provided my personal credit history for review. My.

business partner O. Thomas Harper has used his own personal resources for previous developments, but does not plan to do this development that way.

We have hired architects, attorneys, and geotech consultants, all at our own expense, to begin this process. When we have preliminary plans and a pro forma budget, we will begin approaching private investors and equity partners to raise the funds we need.

We have not filed a tax return for the past few years, because there has been no recent activity in our corporate account. Our last project was a master plan for a 150-unit apartment development in South Seattle, which was scuttled as a result of the economic downturn. Because we had no activity, it did not make sense to keep funds in the corporate account. We have been financing the costs for the Henderson project out of personal resources, while we prepare for raising private capital.

I trust you understand how this business model differs from what you may be used to when screening a tenant for a commercial or residential property. What we are doing is quite different, but also quite typical for a development project. Talk with other builders and developers to verify this business approach.

 

We are willing to take a big gamble on a development in a part of town where few other developers have been willing to take this risk. We believe our proposal for artist live work space and ground floor commercial is the right one for this location, and one in which I think the community will be well-served. 

But if we were to fail, at the very worst, the seller would keep our $10,000 of earnest money, and have a more valuable property with architectural plans, permits and geotechnical report. Trust me, we have already raised the visibility of this site within the community, through our meetings with SE Effective Development, with the Rainier Valley Community Development Fund, and with various arts leaders. This should prove to be a big win-win for our seller as we move forward.

 

Happy Investing!