Breaking into Large Multifamily

[Nathan Zierer]

We are looking to break out of the small multifamily market (2-4) and into the large/commercial multifamily world. We are coming off of a great BRRRR project and will have a large sum of money to be looking at redeploying. If anyone knows of a deal or has a contact for a commercial broker that would be amazing. We are looking at property sizes between 5-25 units ideally, as we are wanting to make this deal owned by us and no outside investors. Once we have our feet under us and have learned more of the ropes then we would be looking to bring on investors. We have been doing the casual looking on sites like LoopNet and Crexi, but from what I understand those are the places where deals are put when the brokers go-to people already turned down the deal. Once in great while, we have seen good ones, but they do seem rarities. We would also like to stick with St. Louis at least for our first one as we have a great team set up there now.

Any help would be greatly appreciated and we look forward to talking with you all. 

[James Wenzel]

You really need to get plugged in with a mentor group that teaches large MF investing. Even if you are buying the deal on your own, the brokers want to sell to someone that they know or someone that was referred to them (unless you are going to overpay). Also, large commercial lenders mandate that someone on the team has a solid track record when it comes to large CRE deals before they lend. You might also want to passively invest in a few large CRE deals. Then you can see the reports, analytics, best practices and what they are doing to drive up the NOI. I actually passively invested in 20+ large CRE syndications before I started buying on my own. Actually just started 2 yrs ago and picked up 3 large complexes (139unit, 260 unit, and 170 unit). I did pay a lot of money on a course with a MF investment group and they helped me fill the educational gaps. Also, check out some MF investment conferences. Think they have a big one in Charlotte and Phoenix in June and Denver in July. I will PM you if you want to talk about what course I took.

[Benjamin Aaker]

Hi Nathan and congrats on getting into the bigger multifamily deals. I don't think Crexi is necessarily a bad place to look. Brokers certainly shop their best deals to their own buyer lists before posting them, but then they usually blast out the listing anywhere they can. Crexi, being one place. True, these are the second dibs and your job is to find out why they were passed over.

25 units, what I call medium multifamily is often passed over because the big guys don't want to devote resources to buying something so small, and the little guys don't yet have the experience to run them. In that case, you might find a good deal on Crexi. You might also find something that needs more repair than most. Many big investors don't deal with huge rehabs and will pass them over. If you are willing to do this, you have a great value-add.

[William Costello]

@Nathan Zierer sounds like you are doing all the right things, I would suggest going to real estate meet ups in your area, networking on BP, LinkedIn and your natural network. Have you thought about syndication at all? It is a great way to invest in larger projects and work with a team that has scaled up into the larger investments. Best of luck

[Evan Polaski]

@Nathan Zierer, the idea that a property being listed on Loopnet or Crexi is where they go to die is always rather dumb to me. That is like saying a realtor that puts a property on the MLS is only putting terrible properties out there. (I understand the analogy isn't totally synonymous, but you get the idea). I know very successful brokers that list every property on these platforms. The good ones sell, the bad ones sit, but that is true everywhere.

So my point: in the 5-25 unit space, presumably in STL, these are fine sources to both find deals (again knowing that not every deal that goes up will be a winner), and also to find brokers that work in this space, and reach out directly to introduce yourself, and if they are keeping outside lists, let them know you are active in the market.

I would also look on the MLS, since a lot of owners in the 5-15ish unit range will often approach residential agents to list.

And then there are also groups that do not list on Loopnet/Crexi.  This is sort of unique per market.  I.e. CBRE in Cincinnati does not list on Loopnet.  They also don't take listing below about $10mm, generally.  Cushman in Cincinnati will occasionally, but always lists on the Cushman site.  Again, they tend to not take listing below about 30 units.  Marcus and Millichap here is hit or miss on Loopnet.  But there is also a M&M listing service.

And last point, generally commercial brokers do not represent buyers. And they are in the business of networking.  I have never had a broker turn me down for a coffee, when I was actively looking to buy property.  It is in their best interest to have as many buyers on their lists as possible, to prove their value when actively seeking listings.

[Nathan Zierer]

@William Costello I have thought about syndication but I really do enjoy the process of search/offering/improving and directly reaping the benefits. Maybe when we are at a more independent financial position we would look at diversifying into syndicated property but at the moment I love the hunt and full process. I also want to prove to myself first that we can do this before we start bringing in outside money, that way we have a proven track record. I feel uneasy about being LP as well where I hear people say they own 200-500 unit complex’s but are really just limited partners with no control over the success of the deal, that seams like a further out there risk especially in an unstable market.

Sorry long rant, but we have been involved in our local REI meetups but they weren't really into the larger than 4 family world.

[Nathan Zierer]

@Evan Polaski thank you for the insight. I have noticed when looking in the rust belt more feasible properties do get listed there (Indiana, Ohio, Pennsylvania, Michigan, south Chicago) but as I move out of those markets the ratio of multi family shifts away to more commercial ventures (gas station, office buildings, strip malls). Not to say there are none listed, just a lot less proportionately. In particular, St. Louis is older than most rust belt cities and has a plethora of small/medium multis, but for as many as there are either no one is selling or they never make it to those 3rd party sites.

I guess my main thing is to try to get in front of brokers and prove I can close so they will take us seriously (worked with one broker and all I got was scrap junk, stuff you would have to pay me to take - it left a bad taste in my mouth after 3-4 months working with them)

[Nathan Zierer]

@Benjamin Aaker your spot on for what we are looking for. Something in the 5-15 unit range that could have some value add and if it were larger than we would be looking at more turn key listings. We certainly are not afraid of the ugly duckling after our last project.

[Nathan Zierer]

@James Wenzel I actually was an architect that worked for a developer for 8 years, but now I am working for a new developer directly in the finance side and project management. I would think my work history and knowledge will make up for any hesitation a lender might have, more of the problem I have is getting credible contacts on the CRE side. Most everyone has brushed us off because of our age or would only feed the table scraps stuff that wasn't worth it (though I did run everything I was sent just for the practice and understanding our market)

[John Warren]

@Nathan Zierer for 5-25 units, I would focus on meeting all of the local commercial brokers in your area and getting on their list. I would just put together a quick one paragraph email you can send them about what you are looking to do. Then put them on a spreadsheet and call, email and text each of them. Ask them what deals they have coming up that you can tour. The process is very different from residential since most of these guys do dual agency, but your goal is to go on a lot of showings. You will naturally develop relationships, and give them good feedback on why you do or don't like a deal. I wouldn't give too much detail right out of the gate since you won't know the lingo yet. 

I also would look hard on your local MLS. Here in Chicago, there are some true diamonds in the rough that trade on the MLS. I have purchased a 9 unit in Berwyn, IL (hot market) and an 11 unit in Bellwood, IL both on the MLS. The best is if you can find a residential agent who accidentally got a commercial listing and undervalued it.

I would use sites like Loopnet to figure out which agents are active in your space. Don't discard the deals on there right away, but don't be surprised if the deals are massively overpriced sometimes. 

[Drew Sygit]

@Nathan Zierer

@Nathan Zierer

[Isaiah Miller]

Quote from @James Wenzel:

You really need to get plugged in with a mentor group that teaches large MF investing. Even if you are buying the deal on your own, the brokers want to sell to someone that they know or someone that was referred to them (unless you are going to overpay). Also, large commercial lenders mandate that someone on the team has a solid track record when it comes to large CRE deals before they lend. You might also want to passively invest in a few large CRE deals. Then you can see the reports, analytics, best practices and what they are doing to drive up the NOI. I actually passively invested in 20+ large CRE syndications before I started buying on my own. Actually just started 2 yrs ago and picked up 3 large complexes (139unit, 260 unit, and 170 unit). I did pay a lot of money on a course with a MF investment group and they helped me fill the educational gaps. Also, check out some MF investment conferences. Think they have a big one in Charlotte and Phoenix in June and Denver in July. I will PM you if you want to talk about what course I took.

 Hi James. Similar to Nathan I am looking to break in the large/commercial multifamily world. Can you please share the mentor group that educated you about MF?

[Brock Mogensen]

Invest lots of time into building relationships with brokers.  That is the best way to find deals.  Working your way up to the top of a brokers buyer list is not easy.  But if you put the time into basic relationship building tactics, you will start seeing better deals.  Then once you close a deal with that broker, you start seeing the good deals quicker.

[Patrick Drury]

@Nathan Zierer    
Definitely buy something that you can rehab and add value to that's where the money is made in multi-family. If you are investing locally, depending on your knowledge and skill level, you can take on more extensive rehabs that out-of-state investors won't have the resources to touch typically. 

[Jay Smith]

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[Nathan Zierer]

Thank you everyone commented here and through DM's. We have been hooked up with a commercial broker through our property manager and are getting some good leads. Once our final appraisal number comes through on our current 2 family BRRRR, we have 2-3 properties we are looking at putting in LOIs on. One of these properties is an off market 16 unit, possibly BRRRR situation. We'll update this thread as we get more concrete information.

Thank you again.

[Benjamin Aaker]

Good luck, Nathan. And thanks for the update. It's great to see how people get into the larger multifamily properties from so many different areas of real estate.