The BIG Deal -Pt 2
Updated: Jul 17, 2020
I sit and write from one of my favourite places in Raglan, a grassy hilltop overlooking the smooth rollers, snaking their way towards the foaming black sand shores. Many a ship has foundered over this treacherous bar, and many a surfer has carved a glorious wake on the face of those mountainous walls of water far below me.
My back is protected here from the chill of the Tasman seawinds by Karioi, the slumbering watcher, a sleeping giant. The only evidence of her once fiery activity is the vegetation covered craterous bowl that makes up her many peaks and troughs. She is visible here and from every point in Raglan, watching. She is my constant reminder to guard the gate of my mind from thoughts that do not serve me. She sees me when I am flaking and scattered, tired from lack of sleep and allowing fear to creep in to my mind. I see her watching me and I remember that I must be the master of my mind else my mind will master me.
I must master my mind or my mind would master me.
It is in this sacred place that I finally return to my writing. Once again my pledge, publicly exclaimed, to write with regularity has fallen away, pushed aside by the all-consuming events of covid-19 and simultaneous arrival of a long overdue baby, warned perhaps by that innate omnipresent consciousness not yet severed by the hard reality of a physical form, was obviously content to remain in the womb. These things, significant perhaps in the context of one human life, yet insignificant and trivial in the face of enormity and scale of human histories, were enough to see my pledge to honour my own creativity dissolve into the ether.
It is against the backdrop of all these unfolding events, both deeply personal and devastatingly global that ‘The Big Deal - Part 2’ takes place. The biggest deal we could have considered, (and still the least important “thing” if indeed life events can be termed”things”), has taken place. We were under contract in September, and we declared unconditional in December although we could not have invented the story of the drama and suspense that this decision would bring us. But I clamber ahead of myself in my eagerness to relate the rich experiences this deal has brought to our property portfolio and lives.
You might recall that I had indicated that I felt our vendor was the riskiest aspect to this deal. We did not have a plan as yet to find the funds to afford this deal, but I considered that far less of a risk than the vendor herself. Her message conveyed through the medium of the agent was changeable and dramatic, without apparent pattern, one moment desperate to sell up and leave Whanganui, the next adamant that we were stealing this property from her. It was her inconsistent behaviour that challenged me the most. The rest we would work out.
I could not have foreshadowed a greater truth.
After the brief high of having a signature on paper to mark the beginning of our due diligence our lives quickly returned to normal. There was very little due diligence to do, I had done it all as part fo the process to determine what figure to offer on the contract. This only needed to be proven by a valuation. I triggered the valuer to commence.
I suffered in the following weeks from a sense that I ‘should’ be busy diligently uncovering more facts and figures, but I had left few stones unturned in my initial research. Our focus became finding a money partner to help us close the deal. This involved putting together a robust ‘Information Memorandum’ (IM) to entice a Joint Venture (JV) partner into the fray. I was surprised when we sat down to draw up a list of people we knew with money to invest and came up with a dozen or so names. It is the truth that as we grew into the property investment game, that our networks had changed dramatically. Two years ago I could not have found two names to place on that list.
I pulled a few late nighters - working well into the wee hours to craft a document that was sharp and to the point, careful not to wax whimsical as is my preferred style of writing (this blog case and point). I distributed the document to a handful of potentials. No bites and the weeks ticked on. I distributed to a new batch. Meanwhile our brokers are frantically working on a finance solution. Exactly how much equity can we extract right now, and how far off the serviceability are we? Our ideal JV partner brings both serviceably and 3/4 of the deposit, in return a half share in a six figure positive cash flow in perpetuity and their funds returned to them within two years. My workings showed that it was possible, if not likely, that their deposit would be returned inside of 12 months. It was a good deal.
We began to work through the details with a potential JV. They were a Big Fish (no names, this is a small community) but suffice to say I was both proud and scared to be working with someone of that experience and caliber. Proud because they would not be considering us if we had not impressed and scared because I was afraid I would be shown to have clay feet. The date drew nearer. I was nervous, it was all moving too slowly for me and we were running out of time to create other options. After sifting through the fine detail and grilling me for hours on the phone, an examination that I passed to their satisfaction, the answer was still ‘no - this is not the deal for us’. Disappointed and relieved in the same breath we went back, again, to the drawing board.
Fate stepped in suddenly, a few weeks remaining and the valuation imminent, and we were approached by another big fish power couple. They had been sniffing around the deal themselves and had nearly fallen over backwards to discover it was us who held the current contract. They were interested….if their bank manager could arrange the finance, if the valuation came back to show the deal was good. We waited the remaining few weeks holding our breath. Or I did. Because nothing troubles Steve enough to change his manner of thought. The valuation was now a week overdue. This piece of information was our key. I expected it would come back low. I planned to use the commercially valued figure to renegotiate asking price. This had been my expectation all along. But time was now desperately short.
Events unfolded in quick succession.
A conversation with our broker: You have the serviceability.
What? There must be a mistake. That can’t be right. (We were refused an investment property loan just last month).
No, I’ve found a financier, You have the lending solution. It’s an asset lender, a Trust. The serviceability is so sound that the asset is considered serviceable in and of itself. You now just need the deposit.
The Jv : Yep, we’re in, pending valuation and our bank manager finding the funds. This wasn’t a drama given the epic scale of their development company.
We just waited now on the valuation and subsequent renegotiation of purchase price, backed by hard evidence. Our time trickled away. I despaired for its arrival, I despaired of the timeframe to renegotiate, or to convince a JV that the deal was sound should our current team bow out.
The council notified us that the standing subdivision on which we had built our equity calculations was due to lapse 5 days after we settled. It was not enough time to complete the final survey and apply for certificates.
I applied to the vendor via her lawyer for early access to the property grounds for the surveyor. I was refused.
I applied for contract extension on the basis of finance. I was refused.
Seven days remaining.
The vendor had changed her mind, she did not want to sell to us.
She wanted an additional half a million for the contract, in her mind, the deal was over, the contract dead.
She contradicted herself daily. There would be no renegotiation regardless of the valuation.
We were stealing from her.
The filtered messages were garbled, irrational, unhinged. I resigned myself that there would be no change of contract. No adjustment of terms for survey. These were obstacles that were not insurmountable but that stacked the deal against us. It began to look a little less rosy.
We were on the Gold Coast at a property development event, when valuations arrived, early Friday afternoon. Long awaited, two weeks overdue and five days before declaration date. I couldn’t open it. We were at lunch with our property developer friends….eating crayfish in buerre blanc sauce and oysters on the rocks, bubbles and caviar. It felt like a parody: someone else's lifestyle, not ours. We were faking it. Fake it til you make it. Fake it until you become it. I asked Steve to open the valuation and I sat, bile rising, our dinner company hanging on the narrative of the deal, anticipating the figure, developers alike awaiting the outcome. Six months of work and this is what it came down to, this number to make or break, the last few weeks having trickled between our fingers.
We needed it to read 1.x M for the lender to finance it.
We needed 1.x to sell this deal to our JV partner.
By my research, experience and diligence, I expected it to come in less. I expected game over.
1.X M he said across the champagne and oyster laden table.
1.xM on the one complex, and xxxK on the adjacent house.
I sat frozen.
HIGHER than what we offered.
I sought confirmation in my disbelief. Steve confirmed. Our friends were laughing and pouring us champagne. The die was cast. We HAVE to figure out how to do this deal. We have to make the money work. We have to. This is make or break. This is us set for life. This deal is the making of us. This is us becoming property developers.
We excused ourselves from lunch. Our hope was that this figure would now allow our potential JV partner to formally commit. We phoned them immediately hoping for a simple solution to closing this deal. They were thrilled for us and excited to hear about the valuation, but there was a note in the voice on the phone, I suddenly realised it didn’t look good, they were going to bow out. My heart sank in my chest. We’d come so far only to be beaten now. They kept apologising. We just can’t, we just don’t have the liquid funds to commit. We’re out.
Five days remaining. No extensions. No deposit money. No JV.
A cracking deal.
What would you do?
Lets do it ourselves.
This was Steve. He wanted us to do it ourselves from the beginning but I had insisted on doing it as a JV, partly to share the risk and reward and partly to learn from the experience of doing a joint venture. We can do it ourselves he insisted. We have the serviceability. We just need to deposit. We can seek angel investors. We can afford to offer good returns and refinance and then in 12 months it will all be ours.
I put the numbers through the spreadsheet. We could offer good returns to an angel. And there was plenty of equity to be generated when the subdivision was affected, let alone the growth, let alone the renovations and other forced appreciation tactics that were worked into our business plan.
We bowed out of our conference, notebooks and phones and a fury of replanning. We drew up a list of potential angel investors.We bought a bottle of Moët - wealth attracts wealth. In the lobby of this five star hotel, seven months pregnant, Moët in one hand, phone in the other we began from the top of the list and worked our way down. The pitch: we have a great opportunity for you with excellent returns…..
We raised half a million dollars in 3 hours, with a quarter of a million potential backup still to be negotiated.
And as we put down out phones and the sunlight and bubbles ran out from this extraordinary friday I realised that we had made it. Not in the sense of closing the deal - there were many hurdles still ahead - , but that we’d made it as investors. Professional investors. Even six months ago we would not have had the courage, vision and skill set to do what we just did. Regardless of whether this deal came through for us not a shred of doubt remained in my mind that we had grown into professional investors and that we were destined become very wealthy.
I pause now in my narrative and my surroundings emerge from the fug of writing and wine. The sun is setting over the darkening waters of the wild west coast, the sky a tangle of wind-torn cirrus, shredded shades of orange and rose above a heaving sea.
The air is reverberating now with an earthy doof as the musician tests the sound, wind whipping soundbites across the hilltop fields. This is Solscape. A raglan icon, a hilltop vegan farm cafe and eco retreat, an open air dance floor preparing for their winter warmer soundbite. Clapped out cars are winding their way up the steep drive and barefooted dreadlocked deliberately conscious humans are gathering here to stamp feet to earth conscious beats and celebrate living in paradise. Stephen and the children will soon join us here - me and my long time friend- turned-covid - captured - nanny and we will move our bodies to the music late into the night. Isabella will run around with her white blonde dreadlocked child friend, tigers in the jungle and wigglers in the middle of the heaving dance floor, wild in this safe space of warm fires, cold winds and the music. This is the first time I will dance since being heavily pregnant and the joy will surround me and my heart will beat strongly with the knowledge of how blessed I am, we are, to be here in this moment all together on this sacred hilltop in this turbulent time, heaving like the water. I meant to write all the way to settlement, I meant that this story was shorter and with less drama and I meant to finish all this tonight but my mind is wandering to the moments immediately ahead.
I wanted to narrate that fifteen minutes before 5pm on the deadline day the accountant was throwing dispersions on the language of the sale and purchase contract and competence of the solicitor and the solicitor was having a fit about the GST implications and the accountants interpretation of the letter of the law regards going concerns. The finance was verbalised but not yet in airtight contracts, the lender had the trust name wrong on the paperwork and the vendor was content that without renegotiating we could not declare unconditional. And yet and yet and yet, the solicitor was confident in her contract, and the accountant in his GST interpretation and the Broker with his finance option and so, with each professional secure in their own field of expertise and minutes remaining, the solicitors finger poised above the keyboard to send the pre-written email, Stephen supporting and loving me every moment either way, I declared us unconditional. A barrage of Spanish fury from the solicitor at our dramatic finish, denial and rage from the vendor and smug satisfaction from the tortured agent marked this deal as finally ours. All this now distant memory as I move to the music on the hilltop, the cogs of time having long since turned dramatically in ways we could not have foreseen, baby snug against my heart, moving with me, an earth-child, baptised in the love of this family against the backdrop of lockdown and global upheaval, watched over by Karioi, the fiery giant, stirred from her slumber by the feet and beats of this winter night.