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Kyle Vogeler
  • Rental Property Investor
  • Emmaus, PA
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Got our first major commercial property under contract!

Kyle Vogeler
  • Rental Property Investor
  • Emmaus, PA
Posted Jul 21 2022, 11:37

MODERATOR NOTE: I'm locking this conversation down because the original post is possibly in violation of the rules. BP does not allow any form of self promotion, looking for partners, deal making, etc. Although the OP doesn't specifically ask for money, he does mention he is looking for investors and the projected returns. ~Nathan G.

Hi all, this is my first time posting here and I am doing so because I am so incredibly proud of my team. We have officially gotten our first major commercial property under contract for $2.15M! Our plans are to construct around 350 storage units on part of the land, while also updating the 10 unit apartment complex located at the front of the property. The entire project will come in around $5.5M, but property value estimates range from $7.9M to $12M. Our advisor, who specializes in storage unit construction and management, was extremely excited to hear about the deal.

Our current task/challenge is raising private money loans to cover the down payment and cash burn during construction (roughly $800-900K in total); we have a detailed loan package and are looking to offer lenders 13% interest per year over the 36 month loan period (lump sum loan). If anyone had any suggestions or strategies that worked well for them when raising money, I would be very grateful to hear about it. 


I look forward to keeping you all updated with our progress!

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Ronald Rohde
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Ronald Rohde
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Replied Jul 21 2022, 12:11

Congrats on getting it under contract. I'm a little confused on the asset. Is it just a 10 unit building with land?

Did you manage SS previously? Is your construction a loan from a bank? "Private money loans" don't seem necessary at this point and wouldn't be utilized for the down payment.

How much equity is the sponsor putting in?

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Kyle Vogeler
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Kyle Vogeler
  • Rental Property Investor
  • Emmaus, PA
Replied Jul 21 2022, 13:07

The asset is currently 29 units split between 2 buildings. The front building is a mixture of garages and apartments and will be converted to only apartments during construction, the building located in the rear of the property is completely garages and will be torn down for the more profitable (and nicer looking) self storage buildings.

We have never managed self storage previously, but my advisors company is going to aid us with software install, filling units, and management (and we are compensating them a % of revenue). It would be unwise for us to try to take on this project without a veterans help :)

Construction Loan is not finalized yet as we are doing to separate loans, which is what our mortgage broker recommended. The first loan will be for the property and the second for construction - loan for the property is 80% LTV, so we will need ~$520K for the down payment and closing. Construction loan should cover most or all of the construction costs, but we will need ~$300K of cash on hand to cover cash burn during construction months. Looking to get private loans for ~$800-$900K to cover closing costs, down payments, and cash burn - we have a few close acquaintances who are in the process of signing LOI's, but we are still working towards raising all the cash needed.

Advisor is not getting any equity in the deal, as we did not offer it. They will be compensated for their help with property management however. 

I believe I answered all your questions, but let me know if you have more or if I missed anything!

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Ronald Rohde
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Ronald Rohde
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Replied Jul 22 2022, 07:14

Yeah, sounds like you have a handle on cap stack.

How much equity is sponsor putting in ;) ?

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Brian Blosser
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Brian Blosser
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Replied Jul 22 2022, 09:05

@Kyle Vogeler Congrats!! Looking forward to hearing how it progresses for you!

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Michael K.
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Michael K.
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Replied Jul 22 2022, 09:33

@Kyle Vogeler how much of your own money are you putting into the deal? and into which loan(s)? Wasn't entirely clear from your description. Also, how many apartments are planned in the final construction? 

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Don Konipol
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Replied Jul 22 2022, 14:32
Quote from @Michael K.:

@Kyle Vogeler how much of your own money are you putting into the deal? and into which loan(s)? Wasn't entirely clear from your description. Also, how many apartments are planned in the final construction? 

Yup hit the nail on the head.  Sponsor with no experience and no capital in the deal.  And wants to offer no equity, just 13% interest for someone putting in what should be equity not debt.  Even IF they get funded, lawsuits are sure to follow. 
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Henry Clark
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Henry Clark
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Replied Jul 23 2022, 14:58

@Kyle Vogeler

Congratulations to you and your team.  Couple thoughts or approaches on funding and cash burn. Developing is always about learning and hurdles, I would have recommended starting smaller, but at least you're starting.

If possible, I would subdivide the two types of projects.  

1.  If zoning or conditional use for the Storage wasn't already part of your "Subject to" purchase, this might take up to 6 months to get approved.  Or not approved in a residential area, unless this is mixed use zoning.   This will eat up a lot of interest and "time".  If you segregate the two projects, the Apartment project can move forward at its own speed.

2.  Segregate so you can have two different General contractors.  There are specialized Storage contractors, plus if you're going local, one contractor might not have the horsepower to get both projects done.  Speed is of the essence.

3.  Segregate so you can have a simpler proposal for different investors.  Makes the project less complicated.

4.  Can't tell on loans, but you want the construction loan to cover construction and also a Rent up Phase for both/either the apartments or Storage.  Say around 5.5% today.  On the storage ask for construction period, then either 18 months rent up phase or 60% "Occupancy" rent up.  You don't want to be paying 13% interest.  Realize the 13% may be to entice lenders, to take no equity position, but it still adds to the total project cost.  Also, the Banker would prefer to cover both the Construction period and final financing.  You don't want to be caught between temporary lenders and your final Lender.  When you hit the 36 month period, your not guaranteed to get re-financed; I would rather be with the same lender in this economy from the start of the project.

5.  Does your deal work if in 2 years, the interest rate is 9%?  Run the numbers.

6.  Or are you looking to flip at the end of your 36 month lump sum construction loan?  Again, I would subdivide the property.  Will be easier to flip these separately.  Also, your time frame I would add an extra year.  Talk with your accountant.  Less than a year then 37% highest personal income tax rate, or if you hold a year 20% capital gain.  At 350 storage units, you will knock out about 80% of all of the potential buyers, with the Apartment complex tied to it.

7.  Back on the loan.  Lien Positions.  Not sure how you will structure but will the private money lenders have to take a second position behind the Financial lender?

8.  Check with your longterm finance lender.  Your comment $5.5mm cost versus $7.9 to $12mm.  Will they give you credit for the "APPRAISED" appreciated value as your portion for the collateral or will they require you to kick in say 25% cash for the $5.5mm.  Appraisers will look at: a.  Comps, b.  Cost, c.  Revenue stream.  In an uncertain economy the Appraiser may be hard press to appraise above Cost basis.  Also their cost approaches use 15 year old cost data, which is not reflective of todays costs.

9.  Contract costs.  Do you have locked in bids for the $5.5mm?  Our storage unit building quotes are only good for 1 month, with a delivery date within 4 to 6 months.  They won't quote any further out, like over a 36 month period. Same for our Concrete contractors.  Make sure you have wiggle room in your $5.5mm estimate.

10.  Self storage you normally do in phases, unless this is multi story.  If drive up, you might do in multi phases.  This will help with your cash needs and reduce your exposure.

Keep chugging.  Great project.  Like any development more hurdles equal greater profit potential.

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Ronald Rohde
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Replied Jul 25 2022, 07:52
Quote from @Don Konipol:
Quote from @Michael K.:

@Kyle Vogeler how much of your own money are you putting into the deal? and into which loan(s)? Wasn't entirely clear from your description. Also, how many apartments are planned in the final construction? 

Yup hit the nail on the head.  Sponsor with no experience and no capital in the deal.  And wants to offer no equity, just 13% interest for someone putting in what should be equity not debt.  Even IF they get funded, lawsuits are sure to follow. 

 Well, with no hard money on the PSA, its just a free roll of the dice for Purchaser. This is why I advise my Sellers to never sign these PSAs...a shot in the dark...

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Michael K.
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Replied Jul 25 2022, 08:53
Quote from @Don Konipol:
Quote from @Michael K.:

@Kyle Vogeler how much of your own money are you putting into the deal? and into which loan(s)? Wasn't entirely clear from your description. Also, how many apartments are planned in the final construction? 

Yup hit the nail on the head.  Sponsor with no experience and no capital in the deal.  And wants to offer no equity, just 13% interest for someone putting in what should be equity not debt.  Even IF they get funded, lawsuits are sure to follow. 

 Yes, without the sponsor putting in their own funds, and without getting equity in return, I would not be interested in this deal.

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Kyle Vogeler
  • Rental Property Investor
  • Emmaus, PA
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Kyle Vogeler
  • Rental Property Investor
  • Emmaus, PA
Replied Jul 25 2022, 12:43
Quote from @Michael K.:

@Kyle Vogeler how much of your own money are you putting into the deal? and into which loan(s)? Wasn't entirely clear from your description. Also, how many apartments are planned in the final construction? 


 We will likely end up using $50K-$100K of our own money for down payment/closing costs on conventional loan for property. We will also be getting a separate construction loan for the storage units and apartment renovation. When all said and done, we will have 375+ storage units and 10 apartments.

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Kyle Vogeler
  • Rental Property Investor
  • Emmaus, PA
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Kyle Vogeler
  • Rental Property Investor
  • Emmaus, PA
Replied Jul 25 2022, 12:50
Quote from @Henry Clark:

@Kyle Vogeler

Congratulations to you and your team.  Couple thoughts or approaches on funding and cash burn. Developing is always about learning and hurdles, I would have recommended starting smaller, but at least you're starting.

If possible, I would subdivide the two types of projects.  

1.  If zoning or conditional use for the Storage wasn't already part of your "Subject to" purchase, this might take up to 6 months to get approved.  Or not approved in a residential area, unless this is mixed use zoning.   This will eat up a lot of interest and "time".  If you segregate the two projects, the Apartment project can move forward at its own speed.

2.  Segregate so you can have two different General contractors.  There are specialized Storage contractors, plus if you're going local, one contractor might not have the horsepower to get both projects done.  Speed is of the essence.

3.  Segregate so you can have a simpler proposal for different investors.  Makes the project less complicated.

4.  Can't tell on loans, but you want the construction loan to cover construction and also a Rent up Phase for both/either the apartments or Storage.  Say around 5.5% today.  On the storage ask for construction period, then either 18 months rent up phase or 60% "Occupancy" rent up.  You don't want to be paying 13% interest.  Realize the 13% may be to entice lenders, to take no equity position, but it still adds to the total project cost.  Also, the Banker would prefer to cover both the Construction period and final financing.  You don't want to be caught between temporary lenders and your final Lender.  When you hit the 36 month period, your not guaranteed to get re-financed; I would rather be with the same lender in this economy from the start of the project.

5.  Does your deal work if in 2 years, the interest rate is 9%?  Run the numbers.

6.  Or are you looking to flip at the end of your 36 month lump sum construction loan?  Again, I would subdivide the property.  Will be easier to flip these separately.  Also, your time frame I would add an extra year.  Talk with your accountant.  Less than a year then 37% highest personal income tax rate, or if you hold a year 20% capital gain.  At 350 storage units, you will knock out about 80% of all of the potential buyers, with the Apartment complex tied to it.

7.  Back on the loan.  Lien Positions.  Not sure how you will structure but will the private money lenders have to take a second position behind the Financial lender?

8.  Check with your longterm finance lender.  Your comment $5.5mm cost versus $7.9 to $12mm.  Will they give you credit for the "APPRAISED" appreciated value as your portion for the collateral or will they require you to kick in say 25% cash for the $5.5mm.  Appraisers will look at: a.  Comps, b.  Cost, c.  Revenue stream.  In an uncertain economy the Appraiser may be hard press to appraise above Cost basis.  Also their cost approaches use 15 year old cost data, which is not reflective of todays costs.

9.  Contract costs.  Do you have locked in bids for the $5.5mm?  Our storage unit building quotes are only good for 1 month, with a delivery date within 4 to 6 months.  They won't quote any further out, like over a 36 month period. Same for our Concrete contractors.  Make sure you have wiggle room in your $5.5mm estimate.

10.  Self storage you normally do in phases, unless this is multi story.  If drive up, you might do in multi phases.  This will help with your cash needs and reduce your exposure.

Keep chugging.  Great project.  Like any development more hurdles equal greater profit potential.

This was extremely helpful and informative! We have already thought about most of these points, but you definitely gave us a few things to think about. Thank you!

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Kyle Vogeler
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  • Emmaus, PA
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Kyle Vogeler
  • Rental Property Investor
  • Emmaus, PA
Replied Jul 25 2022, 13:06
Quote from @Don Konipol:
Quote from @Michael K.:

@Kyle Vogeler how much of your own money are you putting into the deal? and into which loan(s)? Wasn't entirely clear from your description. Also, how many apartments are planned in the final construction? 

Yup hit the nail on the head.  Sponsor with no experience and no capital in the deal.  And wants to offer no equity, just 13% interest for someone putting in what should be equity not debt.  Even IF they get funded, lawsuits are sure to follow. 

 We will wind up with $50K-$100K in the deal and although we have no experience with self storage, we have teamed up with a mentor who will get us up to speed and has a proven track record. Aside from that, we do have experience in project management, and have give large contingencies in chance of issues so we reduce the chance of lawsuits. Investor relations is one of our main priorities, so we are ALWAYS up front with anyone who lends us money, letting them know timelines, risks, and how we plan to mitigate those risks. I do appreciate your comment though, I will make sure to work diligently to avoid getting sued :) 

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Kyle Vogeler
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Kyle Vogeler
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Replied Jul 25 2022, 13:10
Quote from @Ronald Rohde:
Quote from @Don Konipol:
Quote from @Michael K.:

@Kyle Vogeler how much of your own money are you putting into the deal? and into which loan(s)? Wasn't entirely clear from your description. Also, how many apartments are planned in the final construction? 

Yup hit the nail on the head.  Sponsor with no experience and no capital in the deal.  And wants to offer no equity, just 13% interest for someone putting in what should be equity not debt.  Even IF they get funded, lawsuits are sure to follow. 

 Well, with no hard money on the PSA, its just a free roll of the dice for Purchaser. This is why I advise my Sellers to never sign these PSAs...a shot in the dark...


 I agree, there is definitely a lot of risk on the sellers end that we may back out of the deal if we don't get the funds needed for the down payment. Luckily, we are over 80% funded and have 60 days until closing. I would hate to get the reputation as a buyer who frequently backs out of deals, so as long as the inspection comes back clean(ish) then we fully expect to close.  

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Ronald Rohde
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Ronald Rohde
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Replied Jul 26 2022, 07:29
Quote from @Kyle Vogeler:
Quote from @Michael K.:

@Kyle Vogeler how much of your own money are you putting into the deal? and into which loan(s)? Wasn't entirely clear from your description. Also, how many apartments are planned in the final construction? 


 We will likely end up using $50K-$100K of our own money for down payment/closing costs on conventional loan for property. We will also be getting a separate construction loan for the storage units and apartment renovation. When all said and done, we will have 375+ storage units and 10 apartments.


 So you're putting in 0.3-0.5% of the dollars, retaining 100% equity. Thats a good deal if you can get it (sounds like you're 80%)! 

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Paul Moore
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Paul Moore
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Replied Jul 27 2022, 09:10

Congratulations, Kyle!  I'm really happy for you.  

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Matthew Morrow
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Matthew Morrow
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Replied Jul 27 2022, 10:40

This is fantastic. Nicely done. 
As a Lehigh Valley Native, I love to see these local posts on here.  Would love to connect especially if you’re still in the area. 
I host a virtual meetup as well and this type of project is exactly the type of thing we like to showcase to our group of other investors on our meetups.  Keep at it , and love the energy  👍

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