{"id":162255,"date":"2023-11-13T13:19:02","date_gmt":"2023-11-13T20:19:02","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=162255"},"modified":"2024-02-29T16:44:54","modified_gmt":"2024-02-29T23:44:54","slug":"how-we-pulled-off-a-multifamily-deal-with-preferred-equity","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/how-we-pulled-off-a-multifamily-deal-with-preferred-equity","title":{"rendered":"Here\u2019s How We Pulled off a Surprising Multifamily Deal Using Preferred Equity"},"content":{"rendered":"\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">The multifamily investing realm is in a tailspin.&nbsp;<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/money-456\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">Syndicators<\/span><\/a><span data-preserver-spaces=\"true\">&nbsp;are scrambling to keep up with interest rates. Investors aren\u2019t sure whether to wait for train-wreck deals or if we will even see those opportunities.&nbsp;<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">But deals are getting done in this market, and some of them seem quite promising\u2014like the one I\u2019m going to discuss.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">This Investment Provides 17.5% In Year-One Cash Flow<\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">Many investors are concerned about headlines regarding&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/commercial-real-estate-fundamentals\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">commercial real estate<\/span><\/a><span data-preserver-spaces=\"true\">&nbsp;deals going south. A lot of the problems are connected to floating-rate debt, near-term loan maturities, and the office apocalypse caused by Covid and remote working arrangements.&nbsp;<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">We believe many investors can avoid these issues altogether.<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">I\u2019m not sitting on my hands waiting for the market to shift. On the contrary, my team is making investments that are poised to provide greater safety and higher returns than we\u2019ve seen in the bull market of the last decade.&nbsp;<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">In fact, current challenges in the market are actually creating the&nbsp;<\/span><em><span data-preserver-spaces=\"true\">strongest&nbsp;<\/span><\/em><span data-preserver-spaces=\"true\">opportunities we are investing in now.&nbsp;<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Details on the deal&nbsp;<\/span><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">Our fund recently invested $5 million in a 14-asset multifamily portfolio. Here are a few details:&nbsp;<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong><span data-preserver-spaces=\"true\">Workforce housing:&nbsp;<\/span><\/strong><span data-preserver-spaces=\"true\">Operator owns and manages over 4,000 units.<\/span><\/li>\n\n\n\n<li><strong><span data-preserver-spaces=\"true\">No LP capital:&nbsp;<\/span><\/strong><span data-preserver-spaces=\"true\">Founders fund all equity from their own profits and balance sheet.<\/span><\/li>\n\n\n\n<li><strong><span data-preserver-spaces=\"true\">Founders (~ $200 million net worth) signed:&nbsp;<\/span><\/strong><span data-preserver-spaces=\"true\">A personal guarantee on this investment.&nbsp;<\/span><\/li>\n\n\n\n<li><strong><span data-preserver-spaces=\"true\">Current pay:<\/span><\/strong><span data-preserver-spaces=\"true\">&nbsp;15% paid a year in advance.&nbsp;<\/span><\/li>\n\n\n\n<li><strong><span data-preserver-spaces=\"true\">Closing fee:<\/span><\/strong><span data-preserver-spaces=\"true\">&nbsp;2.5% paid in advance (goes straight into our fund, not to us).<\/span><\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">Please note that this is preferred equity, not common. This means we are higher in the pecking order, which could translate to a theoretically safer investment.&nbsp;<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">Like debt, our payments are contractual and personally guaranteed by an experienced sponsor. But unlike most debt, our year-one returns are in the high teens.<\/span><\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"620\" height=\"601\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/10\/image1-1.jpeg\" alt=\"graph of the capital stack\" class=\"wp-image-160838\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/10\/image1-1.jpeg 620w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/10\/image1-1-300x291.jpeg 300w\" sizes=\"auto, (max-width: 620px) 100vw, 620px\" \/><\/figure>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">Recall that Buffett made a similar move 15 years ago (in 2008) in the worst weeks of the global financial crisis, making a profitable preferred equity investment in Goldman Sachs.&nbsp;<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">As we\u2019ve stated in <a href=\"https:\/\/www.biggerpockets.com\/blog\/why-preferred-equity-is-so-compelling-right-now\" target=\"_blank\" data-type=\"link\" data-id=\"https:\/\/www.biggerpockets.com\/blog\/why-preferred-equity-is-so-compelling-right-now\" rel=\"noreferrer noopener\">prior articles<\/a>, we believe this economy is providing us with a short window for&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/preferred-equity-can-improve-your-returns-in-this-environment\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">preferred equity<\/span><\/a><span data-preserver-spaces=\"true\">, and we believe investors need to act now. We don\u2019t know how long these unique opportunities will be available.&nbsp;<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><em><span data-preserver-spaces=\"true\">What type of multifamily deals are you seeing these days?&nbsp;<\/span><\/em><\/p>\n\n\n\n    \n  <div id=\"visibility-group-block_d3123759c7f3f6ba60a76223612e9d48\" class=\"visibility-group  hidden\">\n        \n\n<div id=\"hero-block_965f750b2e76a661f7858f9e26825dcf\" class=\"first:mt-0 hero-block py-4  alignwide   has-background has-theme-gold-light-background-color has-text-color has-theme-gold-color\">\n    <div\n        class=\" flex flex-wrap lg:flex-nowrap max-w-screen-xl mx-auto px-4 relative lg:items-center \">\n\n        <div class=\"relative z-30 w-full \">\n            <main class=\"py-4\">\n                \n\n<p class=\"has-theme-gold-color has-text-color has-large-font-size wp-block-paragraph\" style=\"font-style:normal;font-weight:800\">Get the Best Loan Today<\/p>\n\n\n\n<p class=\"my-3 md:my-5 lg:my-8 has-slate-900-color has-text-color wp-block-paragraph\" style=\"font-size:16px\">Find trusted, <em><strong>investor-friendly<\/strong><\/em> lenders who specialize in your strategy. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<div id=button-custom-event-block_f1922eb134166bf1e523055c9053f798 class='button-custom-event'>\n      <a\n    href=\"https:\/\/www.biggerpockets.com\/business\/finder\/lenders\"\n        x-on:click=\"window.analytics.track('Blog Block | B2C Marketplace Lender Finder', {\n      referrer: 'https:\/\/www.biggerpockets.com\/blog\/how-we-pulled-off-a-multifamily-deal-with-preferred-equity',\n    });\"\n    class=\" btn-shape inline-block no-underline has-background has-theme-gold-background-color has-text-color has-white-color\" target=\"_blank\">Find a Lender<\/a>\n  <\/div>\n\n            <\/main>\n        <\/div>\n\n                <div class=\" first:mt-0 relative h-full lg:flex lg:items-center\">\n            <img decoding=\"async\" class=\"object-cover w-full relative z-20 my-0  rounded-md hidden lg:block\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2022\/08\/Marketplace-Blog-Blocks-Lender-v3.png\" alt=\"investor friendly lender, investor friendly real estate loans\" title=\"\">\n        <\/div>\n            <\/div>\n<\/div>\n\n  <\/div>\n  \n\n\n<div class=\"wp-block-group\"><div class=\"wp-block-group__inner-container is-layout-constrained wp-block-group-is-layout-constrained\">\n    \n  <div id=\"visibility-group-block_64dd31c79f00f\" class=\"visibility-group  \">\n        \n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<div id=\"hero-block_64dd2875dba9d\" class=\"first:mt-0 hero-block py-4    has-background has-slate-100-background-color has-text-color has-theme-slate-color\">\n    <div\n        class=\" flex flex-wrap lg:flex-nowrap max-w-screen-xl mx-auto px-4 relative lg:items-center \">\n\n        <div class=\"relative z-30 w-full \">\n            <main class=\"py-4\">\n                \n\n<h3 class=\"wp-block-heading my-0 tracking-tight font-extrabold has-theme-slate-dark-color has-text-color has-large-font-size\">Join the community<\/h3>\n\n\n\n<p class=\"my-3 md:my-5 lg:my-8 has-theme-slate-color has-text-color wp-block-paragraph\" style=\"font-size:16px;font-style:normal;font-weight:400\">Ready to succeed in real estate investing? Create a free BiggerPockets account to learn about investment strategies; ask questions and get answers from our community of +2 million members; connect with investor-friendly agents; and so much more. <\/p>\n\n\n\n<div id=button-custom-event-block_64dd2888dba9e class='button-custom-event'>\n      <a\n    href=\"https:\/\/www.biggerpockets.com\/signup\"\n        x-on:click=\"window.analytics.track('Blog Block | Acquisition | Free Membership Signup', {\n      referrer: 'https:\/\/www.biggerpockets.com\/blog\/how-we-pulled-off-a-multifamily-deal-with-preferred-equity',\n    });\"\n    class=\" btn-shape inline-block no-underline has-background has-theme-blue-background-color has-text-color has-white-color\" target=\"_blank\">Sign Up<\/a>\n  <\/div>\n\n            <\/main>\n        <\/div>\n\n            <\/div>\n<\/div>\n\n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n  <\/div>\n  <\/div><\/div>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">*Mr. Moore is a partner of The Wellings Real Estate Income Fund, the investment advisor of the Wellings Real Estate Income Fund (WREIF), which is available to accredited investors. Investors should consider the investment objectives, risks, charges, and expenses before investing. For a Private Placement Memorandum (\u201cPPM\u201d) with this and other information about the Wellings Real Estate Income Fund, please call 800-844-2188 or email invest@wellingscapital.com. Read the PPM carefully before investing. Past performance is no guarantee of future results. The information contained in this communication is for information purposes, does not constitute a recommendation, and should not be regarded as an offer to sell or a solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be in violation of any local laws. All investing involves the risk of loss, including a loss of principal. We do not provide tax, accounting, or legal advice, and all investors are advised to consult with their tax, accounting, or legal advisors before investing.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>By using this asset class, you can get really creative with how you structure deals. Here&#8217;s how we did it in one of real estate&#8217;s toughest markets.<\/p>\n","protected":false},"author":214608,"featured_media":162258,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[7357],"tags":[],"class_list":["post-162255","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-multifamily-real-estate-investing"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/162255","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/214608"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=162255"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/162255\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/162258"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=162255"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=162255"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=162255"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}