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SBA 7(a) Case Study: Breathing Life Back Into a Landmark
Discover the unique journey of the Doctor Sax House's revival, showcasing Janover's innovative financing solutions and the power of thinking outside the traditional lending box.
Have you ever stumbled upon a charming old building and wondered about the stories its walls would tell? The former Candlelight Inn in Lenox, Massachusetts, has a tale that bridges generations, and its latest chapter is a testament to vision and innovation.
The building, dating back to 1885, had seen its share of ups and downs. From the buzz around Chef Karl's in the 40s to its most recent incarnation as a private residence, this iconic building has stories embedded deep within its walls.
And now? A passionate couple came across our website, armed with a vision: Restore and revive this beloved landmark. It wasn’t a straightforward path, but it’s a story worth sharing.
From its purchase with a super-low 30-year fixed-rate residential mortgage, to its impending transformation into the Doctor Sax House — a modern, chic restaurant and boutique hotel.
Our team at Janover had the pleasure of playing a part in this tale, navigating the unique challenges this deal presented. Joe Nolan, Janover’s vice president and head of SMB, shed some light on it: "This was no ordinary deal. It was unique, from its history to its financing structure. Finding the right lender was key, one that could see beyond the norms and understand the vision of our borrowers.”
So, how did this all come together? Let’s break it down.
The Discovery: From Vision to Venture
Drawn to the charm of Lenox, Massachusetts, our couple, coming from the hustle and bustle of city life, sought a fresh horizon. Their drive wasn’t necessarily rooted in nostalgia or historical ties to the town. Instead, it was the allure of an iconic, yet dormant, property that captivated them. By 2020, they had sealed the deal, marking their "it's happening" moment with the purchase of the old Candlelight Inn.
With the building theirs and a vision set, they then found Janover's platform, thanks to a fortuitous Google search. Their request was straightforward: to rejuvenate a once-thriving landmark. We got the message and vowed to present their vision to our extensive network of SBA lenders. It wasn't merely about securing a lender; it was about finding the right partner. In this case, that meant reaching out to 10 potential financiers.
The community of Lenox, ever appreciative of its rich history, rallied behind this dream. Perhaps it was the reminiscence of the once-bustling inn, but the support was palpable.
Navigating this ambitious path, the couple remained steadfast, organized, and resolute in their goals. Joe Nolan recalls, "They needed a lender willing to think outside the box." With Janover, they found an ally eager to turn that vision into reality.
The Challenge: Breaking Financing Norms
It's one thing to have a vision and a solid plan, but quite another to find someone willing to finance it, especially when the property at the heart of your vision is bound by an unconventional residential mortgage.
Now, for those unfamiliar, most business property deals wouldn’t typically involve a residential mortgage.
But this wasn’t just any deal.
The Doctor Sax House vision was tied to a beautiful, yet somewhat problematic, 30-year residential mortgage. With a jaw-droppingly low interest rate under 3% (for context, as of October 2023, single-family mortgage rates have climbed north of 7.8%), it was a golden opportunity. But it was also uncharted territory for many SBA lenders. Most just hadn't navigated a business property tied to a residential mortgage.
This wasn't the end of it. While the property's history did grant some leeway, the new owners' ambitions added a layer of complexity. They weren't just reviving an old establishment; they aimed to weave in a retail aspect. Joe Nolan gave some insight: "The borrowers had a clear direction. They knew what they were after. Their plans were ambitious, from the primary use to including retail. There was an extensive zoning process, multiple variances they had to tackle. But despite the ambitious nature, they were steadfast."
The icing on the cake? Finding a lender who didn't just see these unique factors as challenges, but opportunities. A lender who wasn't trying to mold the deal into a predefined box but was willing to think outside of it.
That's where Janover's expertise shined. We understood the uniqueness and found a lender with a common-sense approach, ready to embark on this journey with our passionate borrowers.
The Solution: Piecing Together the Puzzle
When the Janover team took on the Doctor Sax House project, the challenges were clear. The deal involved a startup — a risk in the eyes of many lenders — and a property conversion. However, the real estate's value and the determination of the borrowing group were undeniable.
The existing residential mortgage, with its sub-3% interest, was a boon for the borrowers. But it posed a significant challenge: Many lenders were hesitant to venture outside conventional norms, and the idea of leaving the mortgage untouched was foreign to most. With current interest rates soaring, refinancing everything might have seemed the path of least resistance, but it wasn't necessarily the best for our borrowers.
We expanded our horizons, reaching out to a diverse set of lenders. Some were traditional, while others were more creative. As Nolan emphasized, "The perfect lender needed to offer great terms but also needed to connect with the borrower's vision."
And that connection did happen. Among the various proposals, one lender clearly stood out. They not only provided favorable terms but also genuinely believed in the project. For the borrowers, the chance to maintain their low-interest residential mortgage was a pleasant surprise and an immense relief.
The result: The borrowers matched with the right lender with no delay, going from loan application to approval in just three weeks.
While we had backup options, including refinancing the entire deal, our primary focus was to find the best solution. By reaching out to multiple lenders, we ensured a range of choices. Our ultimate goal? Secure the best terms for the business and the borrowers.
This encapsulates the Janover approach. We go beyond the routine, ensuring our borrowers receive the best options available.
The Result: Crafting an Unconventional Success
The final puzzle pieces clicked into place when the structure for the deal was settled: The original residential mortgage would retain its first-lien position, and a substantial SBA 7(a) loan of approximately $2.6 million would comfortably fit into a second-lien slot.
Traditionally, a strategy of this nature might raise some eyebrows in the lending world. Yet, the undeniable appeal of a lower-cost mortgage sitting in the top spot swayed the SBA lender's judgment, because it translated to lesser outgoings for the borrowers.
Currently, the Doctor Sax House buzzes with the sound of construction. Hammers, drills, and builders are steadily turning the dream into reality. And if things keep moving at this pace, Lenox will witness the grand opening of the transformed inn in 2024.
When asked about Janover's experience with this unique endeavor, the sentiment echoed throughout the team was sheer satisfaction and excitement. This wasn't just another deal for the books; it was a testament to the belief that creativity and persistence pave the way in the financing world.
Finding a fit for every deal, no matter how unconventional, is crucial. While this particular lender worked wonders for the Doctor Sax House, others might be more fitting for different scenarios. The key? Knowing who brings what to the table and matching them perfectly to the needs of the business.
As often happens when construction is involved, time did stretch a bit, with about eight months elapsing from deal acceptance to funds hitting the bank. But those months were crucial.
The borrowers, even though they were amidst the time-consuming zoning process, had the assurance that their financing was locked in. This peace of mind allowed them to focus on other pivotal aspects of the project, navigating the transformation with steadfast confidence.
So, what's the takeaway from this venture?
Every business has a story, and every story requires the right financial backing. At Janover, we weave these tales to fruition, ensuring that every chapter unfolds as it should.
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