Creative ideas for RE financing at a < 2% cap rate.

[Situation in beautiful Vancouver Island, BC]

We are in a situation to purchase an RE-centric business (combined SRO and commercial) that due to various unwise contractual obligations on part of the existing vendor produces almost no income. The cap rate even at the assessed value would be sub-2%.

We are fairly confident of being able to increase income in the short-term by discontinuing non-value-add expenses we have identified and actively market the commercial vacancy. We are in talks with a prospective tenant already and expect a memorandum of interest pending closing. This would bring the cap rate > 3.5%. Hardly impressive, but within range of our local market at this time. The path from there is increasing revenue on the SRO side. The difference between the present rents and market rates is > 70%. There is a pathway here to an 8% cap rate with minimal new investment in the 12–18 month range.

The difficulty is financing this in the short term without getting into onerous double-digit rates. Has anyone come across a similar situation?