How a Difficult Commercial Property Sale Closed with a Creative Seller Carry Structure
Client Overview
Horizon Investments LLC, a well-established real estate investment firm with a decade of experience, specialized in acquiring, managing, and optimizing value-add commercial properties across various secondary markets. Led by managing partners Mr. David Thompson and Ms. Elena Rodriguez, the firm had built a solid reputation for identifying undervalued assets and executing strategic improvements to drive significant returns. Their portfolio included a diverse range of properties, from multi-tenant retail centers to light industrial parks. At the center of this case study was “The Grandview Office Park,” a Class B, 50,000 square foot multi-tenant office building located in a rapidly evolving suburban corridor. Horizon had acquired Grandview seven years prior during a period of strong office demand, successfully stabilizing it and achieving near full occupancy. However, as market dynamics shifted, particularly in the post-pandemic landscape, Grandview began to present significant challenges. The partners, while highly adept at property acquisition and asset management, found their resources increasingly stretched as they managed a growing portfolio and sought to capitalize on emerging opportunities. Their strategic objective for Grandview was a clean and timely divestment to free up substantial capital, which they had earmarked for an exciting new development project that promised higher yields and better alignment with current market trends. They needed a solution that would allow them to exit Grandview without sacrificing their hard-earned equity, but traditional sales avenues were proving increasingly frustrating and inefficient.
The Challenge
The Grandview Office Park, once a reliable income generator, had become a significant operational and financial burden for Horizon Investments. The property, while structurally sound, was showing its age, with some deferred maintenance becoming more apparent. Critically, its occupancy rates had plummeted from a peak of 95% to a concerning 68% as several anchor tenants either downsized or fully embraced remote work policies. The local commercial office market, mirroring national trends, was experiencing a severe downturn, with an oversupply of available space and a significant decrease in tenant demand, particularly for Class B assets. Compounding this issue was the rapidly escalating interest rate environment. Traditional commercial lenders had drastically tightened their underwriting standards for office properties, making conventional financing nearly impossible or prohibitively expensive for potential buyers. This severely constricted the buyer pool, limiting it primarily to cash buyers who, aware of the market distress, were submitting offers at significant discounts—often 15-20% below Horizon’s target valuation. These lowball offers, coupled with onerous contingencies, were simply unacceptable and would have resulted in a substantial loss of equity for Horizon. The firm faced escalating holding costs, including property taxes, insurance premiums, maintenance, and the financial drag of increased vacancies, all of which were eroding their cash flow and delaying their ability to pursue more lucrative investments. With a looming deadline to commit capital to their new development, the inability to liquidate Grandview at a fair price presented a critical bottleneck, threatening to derail their strategic growth plans. Horizon Investments found themselves trapped between a depreciating asset and an illiquid market, desperately needing an innovative exit strategy.
Our Solution
Recognizing the acute predicament Horizon Investments faced, they were introduced to Note Servicing Center (NSC) through an industry colleague who understood NSC’s expertise in creative financing solutions. After an initial, in-depth consultation, NSC’s team quickly identified the core problem: the market’s inability to provide traditional debt financing for potential buyers. To circumvent this, NSC proposed a sophisticated “Seller Carry” or “Owner Financing” structure. This innovative approach would allow Horizon Investments to effectively act as the bank, providing a portion of the purchase price as a loan to the buyer, thereby unlocking the deal. The proposed structure involved the buyer making a substantial down payment, with Horizon carrying the remaining balance as a promissory note for a defined term, complete with an agreed-upon interest rate. This not only expanded the potential buyer pool exponentially by eliminating the dependency on traditional bank loans but also enabled Horizon to command a sales price significantly closer to their desired valuation, rather than settling for distressed market offers. Crucially, while Horizon was willing to provide the financing to facilitate the sale, they had neither the internal infrastructure nor the desire to manage the complex, ongoing responsibilities of loan servicing. This included payment collection, accurate accounting, escrow management for taxes and insurance, handling delinquencies, regulatory compliance, and issuing year-end tax statements. NSC presented its comprehensive, outsourced note servicing solution as the perfect complement. This allowed Horizon to divest the property, receive an immediate cash injection, secure a predictable income stream from the note, and, most importantly, mitigate all the operational burdens and regulatory risks associated with becoming an accidental lender. Our solution was designed to transform a stagnant asset into a dynamic, income-generating financial instrument, all while ensuring compliance and operational ease for Horizon Investments.
Implementation Steps
With a strategic direction established, the implementation process for The Grandview Office Park sale began. Horizon’s real estate broker, now empowered with a flexible financing option, successfully identified a suitable buyer: Stellar Asset Management, a growing investment group specifically seeking value-add opportunities but previously stymied by the tight lending market. Stellar was immediately receptive to the seller carry proposal, as it provided a viable path to acquisition. NSC’s team then worked closely with both parties to structure the specific terms of the deal. The final agreement set the sale price at $5.5 million, a substantial improvement over prior conventional offers. Stellar Asset Management made a robust down payment of $1.5 million (approximately 27% of the purchase price), with Horizon Investments carrying a $4.0 million promissory note. The note was structured with a favorable interest rate of 6.5%, providing Horizon with an attractive return while remaining competitive for the buyer. The terms included five years of payments, with the first 12 months being interest-only to allow Stellar to stabilize the property and improve cash flow, followed by principal and interest payments amortized over 20 years, culminating in a balloon payment at the end of the fifth year. Legal teams for both sides meticulously drafted the purchase agreement, the promissory note, and the deed of trust (mortgage), ensuring all terms were clear and legally sound. NSC provided crucial input on clauses pertinent to professional servicing, safeguarding Horizon’s interests. Upon closing, Horizon seamlessly onboarded the note with Note Servicing Center. This involved providing NSC with all relevant documentation: the executed promissory note, mortgage deed, closing statement, and buyer contact information. NSC then swiftly set up the new loan in their state-of-the-art servicing platform, establishing secure payment collection methods, including ACH and an online portal for Stellar Asset Management. NSC also recommended and established escrow accounts for property taxes and insurance, a critical layer of protection for Horizon as the note holder. Direct communication with Stellar Asset Management clarified all payment procedures, ensuring a smooth transition. The deal closed successfully, with NSC immediately assuming all servicing responsibilities, providing Horizon with real-time access to detailed reports through a secure online portal.
The Results
The strategic deployment of the creative seller carry structure, expertly serviced by Note Servicing Center, yielded exceptional results for Horizon Investments, transforming a challenging divestment into a resounding success. Firstly, Horizon successfully sold The Grandview Office Park for $5.5 million. This represented a significant premium, estimated at between $700,000 and $1 million more than the highest offers received through conventional, bank-dependent sales channels. This not only preserved their equity but also provided a strong return on their initial investment. The $1.5 million down payment immediately provided Horizon with the crucial liquidity required to fund their new, higher-yield development project, eliminating the previous capital bottleneck. Furthermore, Horizon Investments now enjoys a predictable and substantial passive income stream. The $4.0 million seller carry note, generating 6.5% interest, translates to an annual interest income of approximately $260,000. This stable revenue contributes directly to Horizon’s bottom line without requiring any active management on their part. Beyond the quantifiable financial gains, the partnership with Note Servicing Center delivered invaluable operational and compliance benefits. By outsourcing the servicing, Horizon completely avoided the significant operational overhead, personnel costs, and inherent complexities of managing a loan portfolio. NSC ensured all payments were collected on time, accurately processed, and properly allocated, including the meticulous management of escrow accounts for taxes and insurance. This professional oversight mitigated the substantial regulatory and compliance risks associated with private lending, safeguarding Horizon from potential legal and financial liabilities. The efficient, secure, and compliant servicing provided by NSC allowed Horizon’s internal team to redirect their focus entirely to their core competency: identifying, acquiring, and managing high-value real estate assets. The sale of Grandview, once a source of considerable stress, became a testament to strategic innovation and the power of specialized, outsourced support.
Key Takeaways
The successful disposition of The Grandview Office Park underscores several critical lessons for real estate investors and firms navigating challenging markets. First and foremost, creative financing solutions, such as seller carry notes, are indispensable tools when traditional lending avenues are constrained. In an environment of high interest rates and cautious commercial banks, the ability to offer flexible financing can unlock stalled deals, significantly broaden the buyer pool, and enable sellers to achieve superior sales prices. This strategic flexibility transforms a difficult asset into a highly marketable opportunity. Secondly, the implementation of a seller carry structure absolutely necessitates professional note servicing. While owner financing can be a game-changer, managing a private loan is fraught with operational complexities and regulatory risks. Attempting to handle payment collections, escrow management, compliance reporting (e.g., 1098s/1099s), and default procedures internally often drains resources, exposes the seller to legal liabilities, and distracts from core business activities. Outsourcing to a specialist like Note Servicing Center provides the essential infrastructure for secure, compliant, and efficient loan administration, protecting the seller’s investment and ensuring seamless operation. This case study also highlights the importance of focusing on core competencies. By offloading the specialized task of note servicing to NSC, Horizon Investments was able to concentrate its valuable time and capital on its primary business of identifying and managing real estate assets, rather than becoming an inadvertent loan servicer. The financial benefits extend beyond the immediate sale price; they include the creation of a stable, passive income stream from the note, and the strategic redeployment of capital into more promising ventures. Ultimately, leveraging professional servicing for seller carry notes transforms a complex sales challenge into a powerful financial instrument, providing security, profitability, and peace of mind for private lenders and investors alike.
Client Quote/Testimonial
“Selling Grandview Office Park was proving to be a nightmare, frankly. The market for commercial office space had cratered post-pandemic, and with interest rates climbing, banks just weren’t lending for Class B assets like ours. We were genuinely facing the prospect of either taking a massive loss, significantly impacting our fund’s performance, or being saddled with a non-performing, cash-draining asset indefinitely. Our broker suggested we explore a seller carry, but the thought of managing another loan, handling payments, chasing late fees, and dealing with all the legal and accounting complexities was overwhelming. We’re real estate investors, not a bank. That’s when Note Servicing Center entered the picture. Their team not only walked us through the seller carry option in detail but, more importantly, offered to handle *all* the servicing from day one. That was the crucial differentiator. It meant we could achieve a fantastic sales price—significantly more than we were being offered through traditional routes—and transform a problem property into a lucrative income stream, all while letting us focus entirely on our next big development project. NSC took care of everything: setting up the loan, collecting payments via ACH, managing the tax and insurance escrows, and providing us with clear, concise reports. Their professionalism and secure process are invaluable. We couldn’t have closed this deal, or moved forward as quickly and confidently, without their expertise. Note Servicing Center is an indispensable partner for anyone considering private lending or owner financing.”
— Mr. David Thompson, Managing Partner, Horizon Investments LLC
This case study demonstrates how Note Servicing Center empowers private lenders, brokers, and investors to navigate complex real estate transactions with confidence. Outsourcing your note servicing ensures profitability, security, and compliance, allowing you to focus on your core business while we handle the operational heavy lifting. Don’t let servicing complexities limit your deal-making potential. Learn more about how Note Servicing Center can be your trusted partner at NoteServicingCenter.com.
