Grocapitus - Anyone have experience with them?
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Real Estate Investor · Redwood City, CA · Member since 2012 · 272 posts · 399 votes
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RESPONSE FROM GROCAPITUS TEAM – An investor (Mr. Hamrick) asked us about Mr. Joseph Bramante’s comment, so we responded. Our response is provided here in it’s entirety. This is Part 1 of the response. We are also providing the investor’s response to our response, where he mentions the sloppiness of Mr. Bramante's analysis.----------
We see no point of rebutting Mr. Bramante’s analysis on a blow by blow basis. Excel is a necessary but highly inadequate tool to evaluate a property. Understanding the market, the expense ratios and the marketability of a property is critical to understanding the true picture. It is our belief that if Joe had actually walked the property and understood it’s story, his commentary would be different. As it is, he is using a one sided picture of the story to grow his Youtube audience.
The proof is in the pudding. Here is a secure video link to the actual 15 minute video walkthrough of this property’s (post purchase) investor update, recorded recently. In this update, we walk through the property’s first 2 full quarters of ownership.
As you can imagine, with 4 of those months being coronavirus months, we dealt with HUGE challenges. But despite those challenges, shown below is the rental income and NOI vs BUDGET performance of this property. The entire 15 minute video is worth watching, but here is the bottom line, in 2 graphs.
NET OPERATING INCOME: The Net Operating income of the property is higher than the budget given to investors in all 6 months. As you will hear on the webinar, the drop in income in Feb and March was because we were pushing tenants out by raising rents, so we could rehab units. With a number of those rehabbed units now complete, our income and our occupancy is now increasing (and continued to be strong in July and August), even during a pandemic that prevents people from coming out to get tours. I would say that any project that beats pre-pandemic NOI budgets six months out of six is one to be proud of. Of course, our budgeted numbers get higher month after month, but I believe that to be true of every property, including those that Joe Bramante oversees.
BOTTOM LINE – Everything in our business is nuanced. One team sees opportunity, another team sees challenges. As LP investors, you pay us to convert opportunity into reality, and that is what we are doing. We will open this property’s books to you and to your fellow investors, should you decide to proceed to validate these numbers. Keep in mind that the 15 minute video was sent to investors who have already invested, so there is really no point in sugar coating anything.
INVESTOR (HAMRICK’S) RESPONSE TO OUR RESPONSE. NOTE HIS COMMENT ON JOE BRAMANTE’S SLOPPY ANALYSIS ---------------
I was reassured by your thoughtful and timely response to my inquiry.
Needless to say, my confidence in the ability of the Grocapitus team to analyze deals professionally and provide consistent above-average returns to your investors is not shaken.
Even while watching the Youtube video by Mr. Bramante I was suspicious of his speed and sloppiness in performing what was obviously a quick and dirty analysis without forethought or more background on the project.
Mrs. Hamrick and I look forward to many more years of unique, interesting, and profitable investments with you and your fine team of real estate investment specialists.
- Developer · Houston, TX · Member since 2017 · 161 posts · 134 votes6y
RESPONSE FROM TRIARC REAL ESTATE PARTNERS – After hearing many stories of investors getting into deals with relatively new and inexperienced syndicators only to get burned when their numbers didn't work out nearly as estimated, I did 2 videos that provided a breakdown on the analysis provided. Neals was the first and admittedly it was a bit sloppy since I was doing everything off the cuff. However it was not my best work so thank you for giving me the opportunity to redo the video in excel this time and very clearly educate you and your investors on the dangers of economic vacancy and the many broad assumptions you, or more accurately the guy you hired to do your underwriting, made. So stay tuned for an updated video. And for the record, I have no ambition of growing my YouTube channel.
Now, lets get into some of your responses...and no, I haven’t seen your video but shouldn’t have to if the data is correct.
The Engineer vs the Data Scientist.
First, don’t play games with the numbers. I understand that's what you did on your quarterly update with your investors because they don't know any better, but don't try that with me or any post referencing me.
Per your Proforma, your Year 1 Rental Revenue number is $2.2M or an average of $183k/month. This is an average so it starts lower and ramps up. You state it starts at $175k so it must ramp up to around $192k in Dec. Your first month is elevated because it included carry over from the previous month you closed (very common) and the last month is likely elevated due to a surge in rental assistance money. Your average for the other 4 months is $175.7k minus $183.3k is $7.6k over 12 months is $91.2k shortfall or roughly 3.5% of GPR. I will need to check my notes, but the entire point of my video was that the economic vacancy, besides being a terrible metric to use, was too low. Looks like I was right and it was around 3.5% too low. You can conveniently blame it on Covid even though most reports show it had very little impact on multifamily, especially through July. We maintained our collections above 95% through that period as did most other good operators. But you play that card if you have to.
Now lets look at the NOI. Wow, where to start. So, one of three things happened here. Either you messed up the numbers, which it's a rather simple calc so I hope not. Or you excluded something from the actuals but didn't also exclude it from the budget numbers to get a true apples to apples comparison (yes). Or you way over estimated / inflated your expenses (yes). Looking at the two charts, plus knowing the RUBS estimate from your proforma of $121.8k, you can back into an expense number. I excluded the Jan and Jul months data since they were anomalies and I wanted more consistent data. For 4 months, I get $292k which when annualized is $875k vs the budget expense of $1,155k vs the T12 actuals of $950k so you "seemingly" outperformed expenses by $280k(32%) vs budget and $75k vs T12 actual. It looks like your actual taxes are $172k vs $285k and the $50k of lender reserve you had in Non Controllable Expenses was booked to capex (below the NOI) where it belongs. So $163k in extreme overconservativeness (taxes) and miss allocations (reserve). There is still $120K vs budget of inflated/overestimated expenses to account for. Being that overly conservative in your underwriting does not suggest any type of competency or skill, it suggest the exact opposite.
There are a few other items but the point is and has always been, the underwriting performed was sloppy, broad stroked and lacked basic inter line item relationship logic. Sure, you can apply a huge contingency to anything as a safeguard but that won't help you win many deals. What it will help you do is set a very high and above market GP compensation structure for deals by inflating the expenses to give the appearance of not being able to hit those numbers, only to close and reveal much better actual performance, triggering your promotes. On this one you get 50% of the distros above a 2.0x multiple on a deal already projected to hit a 1.9x for a 5 year hold. Thats robbery. Using the annualized NOI of $1.35M vs budget of $1.16M is $190k at a 5.6% exit cap is a minimum higher exit price of $3.4M, likely closer to $4M once income rebounds, of which you keep $2M in addition to your millions in other fees and promotes.
If you're an investor who believes that if a deal over performs they should keep a majority of those profits, attend one of our webinars next week for a 440 unit deal we are closing on in 3 weeks with a 22% IRR and 3.1x equity multiple. (The Weatherly was only 15.6% IRR and 1.9x equity multiple). It's a 30 minute, no fluff presentation. You should attend too Neal!
Register at the link below.
https://zoom.us/webinar/register/WN_IdelSGjGT4yMSr8zqsE7Yg
Originally posted by @Neal Bawa:RESPONSE FROM GROCAPITUS TEAM – An investor (Mr. Hamrick) asked us about Mr. Joseph Bramante’s comment, so we responded. Our response is provided here in it’s entirety. This is Part 1 of the response. We are also providing the investor’s response to our response, where he mentions the sloppiness of Mr. Bramante's analysis.----------
We see no point of rebutting Mr. Bramante’s analysis on a blow by blow basis. Excel is a necessary but highly inadequate tool to evaluate a property. Understanding the market, the expense ratios and the marketability of a property is critical to understanding the true picture. It is our belief that if Joe had actually walked the property and understood it’s story, his commentary would be different. As it is, he is using a one sided picture of the story to grow his Youtube audience.
The proof is in the pudding. Here is a secure video link to the actual 15 minute video walkthrough of this property’s (post purchase) investor update, recorded recently. In this update, we walk through the property’s first 2 full quarters of ownership.
As you can imagine, with 4 of those months being coronavirus months, we dealt with HUGE challenges. But despite those challenges, shown below is the rental income and NOI vs BUDGET performance of this property. The entire 15 minute video is worth watching, but here is the bottom line, in 2 graphs.
NET OPERATING INCOME: The Net Operating income of the property is higher than the budget given to investors in all 6 months. As you will hear on the webinar, the drop in income in Feb and March was because we were pushing tenants out by raising rents, so we could rehab units. With a number of those rehabbed units now complete, our income and our occupancy is now increasing (and continued to be strong in July and August), even during a pandemic that prevents people from coming out to get tours. I would say that any project that beats pre-pandemic NOI budgets six months out of six is one to be proud of. Of course, our budgeted numbers get higher month after month, but I believe that to be true of every property, including those that Joe Bramante oversees.
BOTTOM LINE – Everything in our business is nuanced. One team sees opportunity, another team sees challenges. As LP investors, you pay us to convert opportunity into reality, and that is what we are doing. We will open this property’s books to you and to your fellow investors, should you decide to proceed to validate these numbers. Keep in mind that the 15 minute video was sent to investors who have already invested, so there is really no point in sugar coating anything.
INVESTOR (HAMRICK’S) RESPONSE TO OUR RESPONSE. NOTE HIS COMMENT ON JOE BRAMANTE’S SLOPPY ANALYSIS ---------------
I was reassured by your thoughtful and timely response to my inquiry.
Needless to say, my confidence in the ability of the Grocapitus team to analyze deals professionally and provide consistent above-average returns to your investors is not shaken.
Even while watching the Youtube video by Mr. Bramante I was suspicious of his speed and sloppiness in performing what was obviously a quick and dirty analysis without forethought or more background on the project.
Mrs. Hamrick and I look forward to many more years of unique, interesting, and profitable investments with you and your fine team of real estate investment specialists.
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