Difficulty in doing large deals

[Justin Manley]

Over the years our company has been slowing growing. Today we are up to around 175 apartments of various varieties and subgroups.

In acquiring these locations, what I consider, standard negotiating practices happened. Particularly the idea when I come to you, I offer the first

price and when someone comes to me they offer the first price.

Currently we are wanting to make a big leap and buy a 100-200 unit complex or something akin in magnitude.

It seems we have gone from being a big fish in a small pond to a tiny fish in a big pond and we are having a hard time navigating.

Recently what seems like the perfect property for our model became available and was listed on one of the major national listing companies.

When asking for the specifics for the listing they provide EVERYTHING even the cap rate?!?! (which i never trust from an agent btw :) ) except the asking price.This seems to be the case for many of the properties of this magnitude. I try to only swing on great pitches and would have needed to spend 40-100 hours analyzing such a deal and I have no heart to invest that amount of time just to find out the seller is asking an impossible number which seems to be the case 90% of the time. I decline to respond and the agent (which seems like a 19 year old) calls me up asking for an offer, I tell him I saw no price listed so I didn't investigate. He then tells me many people are getting ready to make offers and tries to get me to scramble to make an offer before it gets away.

Or in other words it seems listings of this magnitude have, some would say, "skilled" sales people engaging in tactics that skilled salesmen would do, and in so doing takes all the opportunity out of transaction for me.

I could just give up in dealing with large firms, but I would prefer to adjust to the new environment and hopefully thrive.

Could anyone who has reached such a fork in the road give me any pro tips on how to navigate this larger pond?

Thanks in advance!

[Greg Scott]

Happy to help.  My wife and I have three properties we manage, 830 units in total.

You are used to dealing with unsophisticated owners.  On small properties, I remember getting a hand-written rent roll.  Most of the owners you will be dealing with now are fairly sophisticated, although some are still terrible operators, they are used to dealing with big dollars.

At this level it is expected that the broker will provide you tons of data. It is also very rare that they provide a price. (Ironically, if they say "selling at a 6 Cap on T12" you can calculate the sales price.) However, if you ask for the "whisper number" or "what is the seller looking for" they will give you a price.

In the end, a listed price or a whisper number is fairly meaningless.  They are only useful in one particular way. You should always run your numbers. If your high-level analysis shows the property is way over priced, never submit an offer that is more than 10% away from the whisper numbers.  It is much better to call the broker and say "I just can't get there".  That is where it gets interesting.  

Some brokers are very aggressive.  They may ask you to submit an offer at whatever you believe the price should be.  In that case, they know the price is to high and are hoping some sucker comes in at whisper.  Do your analysis.  Stick to your guns.  We were shocked once to submit an offer at 90% of whisper and make it to "Best and Final" round.

Some sellers are very aggressive and they believe the property is worth more than it is.  I've had brokers ask me to submit a low offer that I think is reasonable.  They are asking the market to show their client what the real price should be.

In the end, I think you will find the fall-out-of-bed easy deals you used to find  in small properties are nearly impossible to find on the big properties.  Instead, where you will make your money is if you can execute a business plan that unlocks value.

For example, we've built our business around value-add and operational improvements that drive improved NOI over time. We address deferred maintenance, treat our contractors well, treat our staff well, and deliver a great product for our residents. This allows us to get a rent premium over prior owners and nearby competition. We can raise enough money to deal with any and all issues we uncover.

When searching for a new property, we love finding ones where we know we can improve the property and we know we can grow rents because nearby properties are already getting those rents.  Its a lot of work, but that is where the money is made.

Hope that helped.