Suggestions on best commercial lenders for a NC project??

Question

As a wholesaler, a seller approached me with a 48 unit apartment complex, 7 duplexes and a 2500 sqft Single family that he wants to sell (all of which occupy the same block.) Half of which are vacant and the other half occupied. Properties also need work. I would like to purchase but banks and hard money lenders I've spoke with so far are only lending up to 500k. Seller is asking 4.5M. Where are all the commercial lenders?

Tyler Watts · Answer

Welcome to the world of bank loans! There is not secret sauce, especially on a value-add deal like you're describing. The under writing doesn't carry for a 1.25 DSCR which (at the moment) is the golden rule for banks and commercial hard money lenders.

First off- $4.5M for 48 units and 50% are vacant is not a steal, unless this property is located in a downtown area and you have a contact with a developer who will pay 2X to build a high rise. $93k/unit for 50% vacancy doesn't carry hardly any debt, hence why they are capping you at $500k. It's about NOI and DSCR.

If you're confident in your UW and the numbers do make sense, I would recommend a seller carry deal. That's the only way this would work for you and the seller unless a cash buyer comes along which is unlikely at $93k/door. It can be a simple one page contract b/w you too at an agreed upon rate. I would pay I/O for 5 yrs, and then ri-fi but you HAVE to hit your pro-forma to execute this plan.

Simple trick- NOI/Cap Rate will tell you the worth. Use the actual NOI, not the pro-forma b/c that is how the property is ACTUALLY performing. Something like this, if I had to guess is an 7.5-10% CAP rate market if 50% is vacant. Don't use some compressed 5% cap rat, you'll lose money if you do. Be conservative on all aspects

Now go take over the world!

Melanie G. · Answer

Noted, thanks for the insight Pat!

Pat Lulewicz · Answer

Based on location and some rough math, he's definitely looking for market value (stabilized asset) vs the current condition. So he wants all the upside (fully occupied and cash flowing) without any of the work (rehab and lease-up).

Like @Tyler Watts said, the math wont work. You'd probably have to get this seller carried w/o interest, but then you'll have to figure out where to get the rehab capital. The location you're referencing will likely require substantial rehab capital.

There may be some out of state investor who hears NC and throws their money at a portfolio, but this feels like it'd need to be cash transaction.

Melanie G. · Answer

Makes sense! However, the price would include the 7 duplexes, 2500 sqft Single family, and an additional 3.5 acres of vacant land attached, all located less than 1 mile from High Point University. I believe the seller is valuing the location and land value above all else.