14 Dec
2023
14 Dec
'23
10:33 a.m.
I would be happy to set up a call with our lawyer about this. He will
probably have more things to consider than you and I have thought of
already. This was an idea that I had suggested two years ago, and people
had been supportive of the thought of "collective lending" ...but everyone
(me included) decided it was easier to just try to do a conventional
refinance through a bank or CDFI, rather than this financial cat-herding.
It is great that some of the complications are already being thought
through. I apologize if some of the stuff below is stuff people already
know, but I want to make sure that everyone understands certain terms and
ideas, and I also apologize if my explanations fall short of that.
I don't think the "separation" issue is a real problem in terms of
Omni's
exempt status, as the vast majority of people involved in decision making
at Omni are not going to be the people lending money. This is a good thing
to be concerned with, though! It's a key "metric" of whether a nonprofit is
a "public charity" or a "private foundation". Omni is currently a
"public
charity" and would not want to be a "private foundation". Way more rules
and bureaucracy involved with the latter.
The other thing that is at issue is the "equity" that Omni has in the
building. This is a different type of "equity" than we normally discuss at
Omni. In the context of building finance, Equity, is the amount of the
building that Omni owns outright, vs. what Omni still owes the lender.
Thus, Omni purchased the building from the former owner for $1,950,000.
Omni currently owes Mulberry Trust $876,019.24. If the building were to
sell for what Omni paid for it, Mulberry Trust would get paid the remainder
of what is owed to Mulberry Trust, the $876k (and $19.24), and Omni would
receive the rest ... which is over a million dollars.
So the question would be, would this LLC replace Mulberry as the lender,
and only have to raise the amount that is due Mulberry, or ... would it
have a different relationship to Omni in terms of governance?
In terms of the question marks, it is very common for LLCs to dissolve
after fulfilling their short-term real estate goals. So that's not a
problem.
In terms of "anonymous lenders" ... there have to be names involved ...
unless they form an LLC that is a member of the Omni Lending LLC (which is
something that happens in real estate and other investment partnerships)
...
An interest rate would have to be agreed upon ... or, it could be set up
with different members getting paid different rates if there isn't
consensus.
On Thu, Dec 14, 2023 at 1:55 AM Paige P <pgeplan(a)gmail.com> wrote:
Sudo Room has been discussing the possibility of
securing the $876k by
pursuing multiple lenders, rather than just one.
The idea proposed is below, but the proposal for the delegates is to ask
our lawyer to help us write up some sort of structure like this, to present
to potential lenders.
LLC idea
We create an LLC who's charter says it exists solely to buy this building
with the money of its lenders, and collect interest on that loan. We try
and get enough people to buy in, before Omni's foreclosure begins. Right
now, Jake says they knows of 5 people interested in putting up 5 digits
amounts, so in the $50k range. Proposed would be to have a minimum $10k
requirement to join LLC, with option for individuals to join together and
pool money to get a share.
If all goes well and Omni pays off the full loan + interest, those who are
part of the LLC will have received back the money they put towards paying
off the mortgage, along with interest (and then the LLC would dissolve?).
But if the borrower (Omni) fails to pay, then the LLC forecloses on the
property, and the LLC can then choose to liquidate the property to pay back
members or do something else with the building. If some but not all LLC
members decide to do something else other than liquidating, they have
ability to buy out other members.
One concern is our lawyer would say that it would be inappropriate for
them to create an org that would then lend to Omni (should have more
separation). Another idea proposed to get around this was to issue bonds
instead, since this would not require a separate entity, and we could work
with our current lawyer on setting that up.
Another concern is potential sabotage of the system, by getting
overwhelmed with lenders wanting and working to get Omni to foreclose, in
order to get control of the building. To work around that we might require
anonymous lenders to be vetted by known trusted lenders.
There is more discussion on this idea in sudo room's meeting notes:
https://sudoroom.org/wiki/Meeting_Notes_2023-12-13
Paige
_______________________________________________
consensus mailing list
consensus(a)lists.omnicommons.org
https://omnicommons.org/lists/listinfo/consensus