64 unit complex under contract

73 Replies

I posted on the multi-family forum a month or so ago regarding the multi-family 50+ unit market heating up. We've lost out on many offers from buildings ranging from 20-150 units. I've been mainly focused on Cincinnati where I was born and raised after investing in St. Louis for 4 years. However I had a deal come across my plate near several of my other buildings in St. Louis that just made sense. It's a stabilized building with several years of occupancy around 90%. It has some deferred maintenance that we will handle in phases as my construction crews have time. The good part of the deal lies in this...

We negotiated a deal with a 10% seller carry at 5% interest rate. I have two really good relationships with local banks that are willing to go to 80% LTV along with bundling in rehab costs. They will also allow the seller 2nd bearing that we still make debt service. Our primary lenders are quoting rates around 4.25-4.5%. If everything goes well we could be in the deal with only 10% down plus all other associated costs and capital needs. The banks don't even require a phase 1 or property condition report (which we will still get). Unless we need to come up with more capital we will take down the property on our own not bringing in other equity investors. This is a very unique situation (in my opinion) and is probably only possible because of our previous relationship (and their current appetite). I remember when they wouldn't even finance a 12 unit building for us (2009). However I kept fighting and eventually broke into the relationship.

The lead came from a broker that I met when buying a complex a year and a half ago. He knew this complex was near my other properties and knew I was interested in buying more buildings (probably from my Linkedin updates). I've been trying to break into the Cincinnati market, meeting the key players however this shows you nothing is better than a proven track record and established relationships. I will keep pounding the pavement in my homeland of Cincy but I'm definitely not going to pass on a good deal in a market where I own properties. I'm not going to get into the deal specifics since I just got the project under contract however here are a few details:

Purchase price - 1.55MM w/ 10% seller second at 5%

Rehab - 100-150k - mainly windows, plumbing stacks and misc cosmetic

Gross rents are around 30k/month

Tenants pay for everything but water/sewer

Instantly appealing the taxes right at closing. I've had great success with this in the past. I use a lawyer that specializes in this and works off of a contingency fee (we pay her 50% of the reduction).

Hopefully everything goes well with due diligence!

Wow, congratulations. What a great setup on the financing!

Congrats. Sounds like you have potential in this deal. Good luck!

@Chris Winterhalter

Good to hear. I am very interested in hearing how this deal continues to work out for you. So are you saying that the seller took a second mortgage to loan you the down payment? I am just wondering how something like this works. Really looking forward to hearing more about it.

@Walter Ichikawa-Doyle @Swat K.

Thanks...I appreciate the encouragement!

@Anthony Gayden

No it is not a syndication deal....well as of right now if we can make it work for the 10% down (roughly). If we need to bring 20%+ to the table then I will bring in one other investor. We will need to syndicate at that point which I would rather avoid because the deal is smaller and syndication fees are high. If we need to syndicate I will drop the seller second and pick up the deal for 1.495MM. I negotiated two offers...one based on seller financing and one based on no seller financing.

@Jarrett Harris

No....the seller is going to take back a 2nd mortgage for the buyer (us). So we will take out a 2nd mortgage on the property of 10% of the purchase price at 5% interest rate. So the seller will receive 90% of the sales price at closing in cash (+/- fees, concessions, etc) and a promissory note with a deed of trust in 2nd lien position to the property.

Congrats, @Chris Winterhalter !

May I know how old the building is and what category?

I am always surprised when I hear about 30K/unit buildings in the USA. The deal I am working on right now would be about 100K/unit ARV, even if they're new (well, aborted) construction class A+, the difference still gets to me every time.

@Thierry Van Roy

Don't be blinded by the 30k door price tag, an 8-9 cap is a nice return however it comes with more headaches, maintenance, lower quality tenants, etc etc. There are plenty of sub-markets, cities, and newer properties that are trading well above 100k/door in the US. Even cities and property types that trade above 500k/door+.

Congrats on making this deal with creative financing. My favorite !

Sounds like a winner.. I'm looking actively for something of that caliber.. Thanks for sharing..

That's the direction I want to go. Thanks for sharing. Congratulations!!!

Major props for the combination of consistent quality relationship building, creative financing, and taking action when the opportunity presented itself. Looking forward to hearing how it moves forward!

Deal Update:

Our inspection really highlighted quite a few issues in the building. The large majority of the major systems are at the end of their life and need to be replaced. So our budget jumped up to 250k for the building. We tried to negotiate with the seller however he wouldn't budge. He has several down units that he is going to bring up to rent ready condition however that is pretty much all he is doing. We went back and forth during negotiations 4 or 5 times so we really hammered him down from the beginning. We still decided to move forward with the deal because of several reasons:

  • We own 44 units within less than a mile of the prospect property. Having another 64 right there would streamline management, maintenance, and capital improvement projects. Plus we were already comfortable with the area, occupancy levels, and rents.
  • We have an excellent relationship with the local South City PM.
  • The numbers were still within our investment parameters.
  • We had strong relationships with local banks to provide favorable acquisition and construction financing.
  • The acquisition fits within our goals of owning complexes over 50 units.

Today I received word that one of our banks approved the loan contingent upon appraisal (hopefully everything goes well). The write up went through normal underwriting and then was signed by the board today.

Here are the terms:

  • Purchase loan of 1.24MM (they are allowing only 10% down with the seller 2nd).
  • Construction Loan of 200k (250k rehab w/ 20% down)
  • Rate 4.25% fixed for 5 years (ballon at 5 years)
  • Amortized over 20 years
  • I/O available for the full amount for 6 or 12 months to help with cash flow.

Almost to the finish line!

Originally posted by @Chris Winterhalter :
I posted on the multi-family forum a month or so ago regarding the multi-family 50+ unit market heating up. We've lost out on many offers from buildings ranging from 20-150 units. I've been mainly focused on Cincinnati where I was born and raised after investing in St. Louis for 4 years. However I had a deal come across my plate near several of my other buildings in St. Louis that just made sense. It's a stabilized building with several years of occupancy around 90%. It has some deferred maintenance that we will handle in phases as my construction crews have time. The good part of the deal lies in this...

We negotiated a deal with a 10% seller carry at 5% interest rate. I have two really good relationships with local banks that are willing to go to 80% LTV along with bundling in rehab costs. They will also allow the seller 2nd bearing that we still make debt service. Our primary lenders are quoting rates around 4.25-4.5%. If everything goes well we could be in the deal with only 10% down plus all other associated costs and capital needs. The banks don't even require a phase 1 or property condition report (which we will still get). Unless we need to come up with more capital we will take down the property on our own not bringing in other equity investors. This is a very unique situation (in my opinion) and is probably only possible because of our previous relationship (and their current appetite). I remember when they wouldn't even finance a 12 unit building for us (2009). However I kept fighting and eventually broke into the relationship.

The lead came from a broker that I met when buying a complex a year and a half ago. He knew this complex was near my other properties and knew I was interested in buying more buildings (probably from my Linkedin updates). I've been trying to break into the Cincinnati market, meeting the key players however this shows you nothing is better than a proven track record and established relationships. I will keep pounding the pavement in my homeland of Cincy but I'm definitely not going to pass on a good deal in a market where I own properties. I'm not going to get into the deal specifics since I just got the project under contract however here are a few details:

Purchase price - 1.55MM w/ 10% seller second at 5%

Rehab - 100-150k - mainly windows, plumbing stacks and misc cosmetic

Gross rents are around 30k/month

Tenants pay for everything but water/sewer

Instantly appealing the taxes right at closing. I've had great success with this in the past. I use a lawyer that specializes in this and works off of a contingency fee (we pay her 50% of the reduction).

Hopefully everything goes well with due diligence!

Congrats Chris! I hope to hear more about your experience and hopefully I can acquire some additional tips.

Medium new american funding logo  Albert Bui, New American Funding | [email protected] | 949‑514‑5106 | http://albertbui.com | CA Lender # 345453, WA Lender # 345453, TX Lender # 345453, TN Lender # 345453

What is the year built? You mentioned Phase I and PCA, but not asbestos & lead surveys. I lived in the St. Louis area my first 29 years.

Chris,

Is the seller carry back loan I/O or fully amortized? Over how many years? Let's say appraisal came back at $1.4M, and your lender is only willing to lend $1.12M while your seller is firmed on the $1.55M selling price, what would you do? I figure this would be a good exercise for you to share your experience with us.

Thx.

@Minh L.

Seller carry back is a 6 year fully amortized loan.

As-is appraisal needs to come in at 1.55MM and the ARV with 250k in improvements needs to come in 1.8MM. If the appraisal comes back low I will ask for another seller reduction. If the seller refuses I would dive into the reasoning of the appraiser and potentially appeal the appraisal amount which is very difficult to do. If the appraiser caught something that I didn't in underwriting then I would potentially walk from deal. If it appraised really low then the returns might not be there to bring the extra cash to the table.

Thanks for sharing this great deal and the creative financing structure.

All the best in closing this deal:)

Any chance you would like to sell off some of your past St Louis investments?