In July 2014 I bought a 200+ unit deal in Dallas, TX for $6 million and at closing the property appraised at $7.4 million.
The deal was off-market and I located by doing a strategic direct mail campaign.
This was a tough repositioning deal, but since buying, I have spent $500k of my $750k rehab budget doing interior and exterior upgrades.
I am working with a third party management company in TX and we have increased rents over a $100 per unit since acquisition.
We increased occupancy from 84% in July 2014 to today we are 99% occupied.
I raised $2 million for the deal by doing a syndication. For those of you don't know a syndication is where you pool funds from other investors. The offering was a 506(b) and the minimum investment was $100k.
An SPE (single purpose entity) was setup to acquire the property and we formed an LLC.
I secured a bridge loan through a hedge fund who gave aggressive financing at 84% LTV and a rate of 6.25% I/O (interest only) and I was the loan sponsor. With commercial deals, generally the debt is non-recourse with no personal guarantee unless you do something bad called the "bad-boy" provision.
The investors receive a preferred return of 8% and share in back-end profit. This is a unique deal as upon refi the investors get their principal back, plus an overall 20% yield on their money and they exit the deal. I retain 100% of the deal and will cash flow about $20k a month.
The refi will happen before 9/30/15.
The cool thing is I am getting ready to go under contract on a 130+ unit deal in SC and need to raise $2 million for this deal. Where do you think my investors from the TX deal will hopefully bounce their money too, SC baby...
By the way I am a CPA who quit my job to pursue large multifamily deals. Here is a link to the thread and my story if you need some inspiration. You don't need to be a CPA to go after the bigger deals. Just determination, focus, and a lot of work.
Also, and I don't toot my own horn very often, but I feel there are some REALLY good nuggets of info in this thread:
Finally I had the privilege of doing a BP Podcast that will air on August 13, 2015 so keep an eye out for the link and I hope you will be able to listen in and learn a thing or too.
Congrats on this deal and the podcast. I'm confused about the loan description. Can you explain the bridge loan? Did you do a primary and a mezz loan on this deal or do you just mean it's a short term initial loan that you will refi out.
Enjoyed the share, and... great name by-the-way.
Looking forward to the podcast.
Best to you!
On the refinance, do you plan on using a Fannie Mae Non-recourse loan or CMBS? If not one of these, what loan execution were you thinking of using?
Appreciate you sharing your success!
Great job Brian
i thought you just pulled out money from your back pocket and bought a deal..................hahaha.
im just waiting for the line IF i can do yall can do it!
@Brian Adams congrats!!! This is awesome, I love your model it's similar to mine and unit size is where I am going
Nice breakdown of this deal. Looking forward to your podcast.
Funny Brian, I had this great day today, 2 good meetings, close to working out some kinks in a new business plan feeling like I'm working my business. Then I read your great work, it's why I come to this site. I can hear in your words the pride, not conceit, but a love for what your doing. I love the line
"You don't need to be a CPA to go after the bigger deals. Just determination, focus, and a lot of work."
Congradulations, I will be listening on the 13th
@Brian Adams I am very much looking forward to the BP Podcast. Thanks for posting about your experience - I'm about to dive into your other thread! The value found on this site is in large part due to the contributions of stories and information by people like you.
Best of luck in SC!
Absolutely amazing. If I am understanding you correctly, after the refinace, you will own 100% of the property?
@Joshua Sayre , the best way to contact me is send me a message so we can connect.
@Brian Adams GREAT podcast!!! I recommend everyone check it out.
congrats brian. I have some questions if you don't mind answering.
after the pref is met, how did you arrange the split? what is your promote?
you say you plan to pay back all investor principal + 20% @ refi then your investors are out. what if they still want to be in and be part of the hold long term?
@Larry K. , each deal will be different depending on the exit strategy, type of asset, market cycle, repositioning vs. value add, to name a couple factors.
So with each component taken as a whole it ultimately impacts cash flow and how the deal is structured.
The short answer to your question is the splits will vary and are deal by deal. (I know not very helpful - :)). I want my investors to be rewarded with cash flow and returns working with me and my company. At the same time putting these large deals together is a lot of work so it has to make financial sense to me as well. Bottom line in my opinion is that the splits need to be fair to both parties to create win-win situations.
Regarding the refi and investors exiting, everything was disclosed in the agreements like the PPM that upon refi the investors exit the deal so in this case all the investors knew getting in what the end result would be. My point is make sure you work with a good securities attorney to ensure your documents have all the necessary disclosures and make sure to communicate often with your investors to share your vision, exit strategy and your plan.
Investors certainly invest in a project, but really they are investing in someone that they can trust and not only talk the talk, but back it up with action and results.
Thanks. If I can dig in a bit more. ...
what happens if the property has not appreciated enough and the refi can't take the investors out completely. Say you can only pay them back half so they still have half their investment in the deal. Then the pref going forward is paid on that remaining principal amount, right?
Regarding the after pref split (whatever it is) is that additional interest so let's say they are making a 12% conc return instead of 8 and their principal stays the same or do such payments go toward reducing the principal?
@Larry K. , taking the speculation out of your question about the what-ifs, in my case the refi will take all the investors out of the deal.
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