How Colonial Capital Empowered A So-Cal Startup to Migrate and Grow In Phoenix

Last year, Sharon Pereida decided to purchase commercial space in Phoenix. One of her long-term tenants ran an automotive startup and wanted to move to Phoenix from So-Cal, to leverage lower costs and to hedge against COVID uncertainty. 

This was going to be Sharon’s first venture into the Phoenix property market. However, she had a major problem: getting the capital to set up and develop the new Phoenix office space. 

Improper leverage on her existing rental properties and cash flow issues made it tough for her to secure a conventional bank loan. Colonial analyzed her position and saw the value of her existing assets. 

After appropriately underwriting and gathering due diligence items, we offered her a $210,000 Phoenix hard money loan. Sharon was able to purchase the property, and her tenant got his foot in the door in the automotive space. Here’s how we made that happen!

Phoenix in 2021: at the intersection of commercial and residential growth

Should I move to Phoenix? Over the past year, more and more California business owners have been asking themselves this question. COVID-related market uncertainty and high So-Cal rent are turning the city into an increasingly attractive destination: in 2021, Phoenix ranked #7 as ‘best city across the US for startups’. Exceptional infrastructure, lower rental costs, (and lots of sunshine!) were key reasons to move to Phoenix. 

As a result, we’ve seen a lot of “hybrid” growth over the past few months: startups and small businesses are moving from California to Phoenix. They’re purchasing and renting commercial properties. Many people are making a long-term move and buying residential properties too. 

Moving to a new city can be daunting, even in the best circumstances. How do you adapt to the new environment? Where do you get capital to keep your business moving forward? Sharon and her tenant had these questions in mind when she decided to buy commercial space in Phoenix. 

Colonial Capital guided her every step of the way, understanding her needs, drawing up a custom finance plan, and following through. Today, Sharon owns the desired commercial space near North Mountain Village in Phoenix. Her tenant has renovated the space and set up a new HQ for his automotive company. 

With regular cash flow coming in, Sharon’s “on-paper” financial situation has improved dramatically. In a few months’ time, she’ll be refinancing her Colonial asset-based loan with a conventional lender. 

A new opportunity and new challenges

Sharon owns a range of commercial properties in Southern California that she’s been renting out to businesses. These properties are highly leveraged, however, and between COVID and the economic downturn, rental cash flow has been increasingly uncertain. 

One of her long-term tenants, an automotive startup owner, suggested that she purchase space in Phoenix. He was planning on moving anyways, thanks to the lower cost of rent and proximity to his new clients: it’d be a win-win for both of them. 

Sharon saw the potential in this idea: she’d be helping a long-term tenant, while simultaneously diversifying her holdings to a new city. The one thing holding her back despite all these wins: she had trouble securing funding from conventional lenders (i.e.: a bank). 

When banks looked at her P&L statement, they did not see long-term potential. Instead, they saw highly leveraged properties and uncertain cash flow from rent on those properties. This is where Colonial Capital came into the picture.

A custom financial plan to meet specific needs

As an asset-based lender, Colonial looked beyond Sharon’s current cash flow situation. We looked at the money she was putting into the new Phoenix commercial property. It was worth $486,000, and she was capable of putting $276,000 by herself, a bit more than half. 

We then sat down with her to understand her game plan: Sharon was looking for bridge financing for the first year. During this time frame, she would acquire the property and move her tenant in. He’d invest towards developing the property, by adding in storage units, additional pads, and all-around improvements. 

By the end of the year, the developed office space would be worth considerably more, and she’d have regular cash flow from rent: allowing her a platform to refinance with a bank. 

Taking her strategic plan, timeline, and nearby comparable properties into consideration, Colonial drew up a custom, 12-month Phoenix hard money loan for $210,000, at 10 percent interest. This loan bridged the gap between the selling price of the property and what Sharon was capable of investing by herself. 

We didn’t see an ineligible loan here. Instead, Colonial saw a moderate risk investment by an experienced commercial property owner with high potential. With Colonial’s loan, Sharon was able to purchase the property. Her tenant moved in, and he’s planning on investing a significant amount towards development, including new storage units. In a few months, Sharon will be refinancing with a bank. 

Colonial Capital gives you the breathing room to stabilize when you move to Phoenix

The first few months are the toughest when moving operations to a new city. For Sharon and her tenant, investing in a Phoenix property meant finding a financial partner to bridge the viability gap for those first few months. Whether you’re a startup or a small business owner, this is exactly what Colonial Capital can help you with. 

As an asset-based lender, we’ll look beyond your cash-flow-on-paper report, and instead to the value of your assets and your long-term game plan. During those uncertain initial months, we’ll give you the breathing room to make the move, get things going, and be the catalyst you need to obtain conventional lending down the road.

If you’re thinking about moving your business to Phoenix, reach out to us at (602) 224-0745. Colonial can help you get on your feet, bridge those initial gaps, and empower your long-term vision. 

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