If you, as Owner-Operator-Sponsor (OOS) of an proposed indoor shooting range have limited cash available to use in establishing your indoor shooting range, understanding the roll of a Business Partner vs the willingness of an Equity Investor is critically important.

Why? OOS must spend what is called Pursuit Money to be in a position to make an pitch for equity. The expense include the following: 

-- Business Model / Budget / Proforma

-- Narrative Business Plan

-- Due Diligence Documents and Studies

-- Real estate related expenses (legal contract fees, escrow deposit, physical and legal due diligence items, etc)

-- Feasibility analysis (Architectural fees for Schematic building layout, footprint and site planning)

-- Legal fees

-- Loan application related expenses

Then OOS needs a Business Partner (BP).    BP is not an Equity Partner (EP).  At least not yet. An EP will invest their cash but not until the date the construction loan closes. 

Note, there are some key logistics to receiving EP cash to be discussed. BP’s cash will, in time, become an EP, almost by default or necessity unless agreed to otherwise between BP and OSS.    

Though OOS could use a (private) loan for Pursuit Costs, it will need to be paid off, otherwise the loan will not count as equity and becomes an OOS liability.  For this reason, cash is the key.

The objective of using BP’s cash is: OOS gains and maintains control of the project and the pace of forward progress through due diligence, zoning, design, etc.  Throttling progress while pursuing real estate due diligence issues, zoning, design, EP’s, GC pricing, loan underwriting, etc is valuable!   OSS does not need a BP if OOS has the Pursuit Money needed to get to, or very near (in time and expenses) the loan closing table.  

Left to EP’s, their lack of understanding or patience for the issues OOS is facing or their interest in control could hamper or complicate progress.  Best to treat EP’s as they expect to be treated…people putting their money to work on an actual deal in which +90% of the issues are resolved / known and controlled by OOS, in other words, not sooner than is necessary to close the acquisition and construction loan. This is the point at which all the equity must be on hand.   

Note:  Contracting for commercial real estate (land or a building) should be structured such that OOS is permitted time to complete the necessary tasks and purchase the property using loan proceeds is ideal.   This requires OOS to have the property under contract for a period of time long enough to complete several costly and time consuming tasks mentioned above.

BP’s are typically: 

-- An individual OOS has a good / long terms relationship with because they need to trust that OOS is using their money.

-- Going to be a 50/50 partner with OOS  

-- % 's to be determined agreed upon in writing

--before much time and money is spent and prior to deadlines being established

--might be upset but will not be significantly harmed financially in the scope of their lives if the shooting range does NOT come to fruition…one one should not be going “all in” because there are too many variables in commercial real estate (gun range or otherwise) that risk exposures.  

--OOS contributes time and expertise / management / coordination of the various parties involved to reach the point of full control of the range project and are positioned as close as possible to loan closing to offer EP’s their terms, and the bank their required deliverables for underwriting and closing.

--BP’s contribution is the money needed for OOS’s to make his contribution (of efforts). Note: Of course OOS may also be contributing by paying for some of the Pursuit Costs.

--Considered to be taking the biggest cash risk due to pending zoning, soils, environmental, equity raise, loan underwriting, etc favorable for budget.

--Will receive better terms (financial return) than the EP because BP’s money is more risky and is first in.   

--It’s because BP contributed Pursuit Money that EP’s have the opportunity. 

--EP’s will either contribute / invest cash only, or cash and their personal guarantee(s) to secure the loan.   

--Within the structure of the operating agreement per the above, there will likely be at least three types of members: OSS, BP(s), and EP(s) who invest their cash

EP who invests their cash and are willing to guarantee the loan too (rarely would an EP guarantee and not invest cash). 

Email: [email protected] to discuss further.

YOU NEED PROJECT SPECIFIC PROFESSIONAL INVESTMENT AND DEAL STRUCTURE ADVICE!! THE ABOVE IS FOR DISCUSSION ONLY AND IS NOT LEGAL / INVESTMENT / TAX GUIDANCE, RECOMMENDATIONS OR ADVICE. RATHER IT SHOULD ONLY BE USED FOR PURPOSES OF INFORMING AND EXPLORING IDEAS.  CONSULT PROFESSIONALS IN YOUR LOCALE FOR PROPER GUIDANCE AND APPLICABILITY.