Non-Performing Note Buyers in NYC - Is this a good deal?

Question

The current note holder is a Private Money Lender This is a preforeclosure property. A receiver is in place and collecting rent from all (6) tenants.

All (6) are current on their rent payments.

Unit 1 - $884.76

Unit 2 - $811.71

Unit 3 - $806.80

Unit 4 - $473.58

Unit 5 - $884.76

Unit 6 - $878.02

Income: $56,875

Expenses: $20,100

NOI: $36,775

The current FMV of property is $800,000

The purchase price of the notes is $450,000

I have been offered an opportunity to purchase a Multifamily property located in Brooklyn (Flatbush), NY. This is a 6 family, 100% occupied, preforeclosure property. The seller has offered me the opportunity to purchase the 1st & 2nd lien notes with a combined face value totaling $492,000. The combined monetary value of the principal and interest balances totals $1,030,000. I have spoken with the foreclosure attorney and he explained that the foreclosure process will be completed in the next 6 to 9 months. Do you think this a good JV deal? Please let me know what you think.

Tanya Miller · Answer

@Dion Depaoli

Thanks, for your response and interest. I am eager to learn more about the note business and you appear to be very knowledge. Please inbox me. I would like to answer your questions and learn.

Dion DePaoli · Answer

The unpaid principal balance is $492,000. That makes me think the value of the real property is not close to $800k. As others have pointed out that NOI on $800k is not very good.

The mortgagee already managed to get a receiver put in place and in NYC that can be a pain. With a receiver in place the incentive to sell the loan reduces greatly. Remittance to the lender would still be north of $2k a month. Your getting paid to foreclose.

Something is missing or not revealed. I think the FMV you have seems unrealistic. Rents went up post crash, not down and it is 100% occupied. Some values are increasing in NYC but not by 50%.

I am not sure what to make of the "mortgagee is a hard money lender". Not clear why a HML would have both a first and a second lien if they originated. Moreover, it doesn't look like this combined loan to value is the typical 35%+ equity HMLs tend to look for. There might be more of the story in that.

I guess the other question at hand, you (OP) are looking for a JV partner, are you looking for capital for this or what's the skinny there. I would have some interest in this depending on how it starts to shake out.

Tanya Miller · Answer

Thank you, all for sharing in my discussion. I really appreciate the feedback. For those located in NYC would you happen to know of any private lenders that JV on such projects?

Chaim F. · Answer

@Tanya Miller

Overall it seems like a good deal, knowing the values in that area, but it would matter the condition of the property, how many tenants are willing to move before closing, since there's significant upside. Are you planning to buy with cash? If not you might barely cover your expenses.

Good luck!

Wayne Brooks · Answer

@Jay HinrichsYeah, exactly my thoughts about the foreclosure timeline, just one of many problem factors. I understand prime real state has a lower cap, but I'm guessing apts renting from $500-800 aren't class A. And of course, not enough info to go on.

Jay Hinrichs · Answer

@Wayne Brooks could have to do with the Nightmare that is a foreclosure in the state of New York.. risk/reward.. note holder wants out..

as to your other points I don't know about values etc. however I would imagine prime NYC is like Prime west coast were multi's trade at 3 to 5 caps

Wayne Brooks · Answer

Just from a common sense, investor point of view, I'd say no. Not sure a property with a Supposed NOI of $36k (I'm guessing it's even less) would be worth $800k. But if it were, and IF the the total debt owed was $1M, then it would sell at auction for at least $650k, so why would the lien holder give up $200k (an extra 45% above his $450k price) and at the same time taking a loss, for a 6-9 month wait?????

@Dion DePaoli?

Les Jean-Pierre · Answer

I don't really know much about note investing but is the property rent regulated?

Non-Performing Note Buyers in NYC - Is this a good deal?

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