Any experience selling to REITs?

Question

Developed a relationship with an emerging REIT.

Just want to make sure I get paid for delivering exactly what they say they want.

They are looking for bulk portfolios in major cities.

-SFR

-1990 or newer

-3/2+

-Price per unit of 150-275k

What advice would one give that has this specific experience with selling to the big guys.

Thanks in advance,

Glynn

Dion DePaoli · Answer

Seems to me the elephant in the room is missing from your list.  At what sort of discount do they expect to get into the pool of assets at?

Certainly, they are not looking to get into properties at 100% of RE Value otherwise they don't need you for deal flow.  Those deals are everywhere.

Aside from the missing discount, there are likely many other criteria they have that you are not aware of just yet.  Minimal capital deployments.  Current occupancy.  Rehab level.  etc....

In addition to all of that, it is not precisely clear if you will take a principal role in the purchase and sale contract or if you simply are trying to broker the deal.  If you are brokering, you are clearly acting without a license.  Licensed real estate agents will come after you if they see you doing this and report you.

Attempting to wholesale a bulk portfolio is pretty close to impossible.  The seller in most cases will be institutional and they are aware of counterparty risk.  Therefore, they will look into your actual capacity to conduct a large trade.  If you don't have the capital or competence, the conversation will end pretty quickly.

Inside those bulk contracts can be representations and warranties that you as a middleman may not want to make but the end buyer needs.  Adding another level of complexity.

I have traded (purchased and sold as principal) bulk residential properties.  Those pools are not all that common any more.  It is difficult to make sense out of the discount that is sought from a seller's perspective.  The last real property trade I personally did was in 2009 with a bank.  Back when banks were busy trying to reposition their balance sheets to stay off the regulator's radar.

I am not seeing anything in their criteria listed that makes me believe they have some type of niche to exploit.  In addition, some of the criteria is going to limit the assets they get to look at.  I think you really need a niche or be open to opportunistic characteristics on the asset criteria in order to get anything going.  This criteria sort of says, give me the good stuff and keep all the bad stuff.  BTW, I want the good stuff with a sizable discount.  IMO, not a very practical approach to the market right now.  So me a REIT that can take my low value REO in war zones and offer me a fair price and they make money, that is a trading partner everyone wants.  Show me a REIT that only wants median valued homes in major MSA's and only SFR, with light to little rehab and I will show you every other investor in the US with the same desire.

In the last couple of years, all sorts of capital firms have sprouted up with similar intentions as this REIT.  Many of the previous ones have already went out of business or didn't actually deploy capital due to lack of deal flow and simply closed before they actually opened.  Be careful you are not wasting your time.