*7Mn in capital potentially needing to get placed*

20 Replies

*7Mn in capital potentially needing to get placed*

An agent and I are thinking of creative solutions for the best solution to this opportunity. We have the listing on a 65 unit portfolio sale with a 32 unit apartment complex and a 33 unit development site next door. #Koreatownla #offmarket

If you had a seller who was sitting on about 7Mn in equity and don't want to be landlords anymore, how would you structure the sale to roll over the funds into a syndicated deal as LP?

Expertise needed in #tax, #syndication, #LP, and #passivecashflow.

If I were seller I would consider a project in an opportunity some to shelter capital gains if they're ok with a long term hold. 

Updated about 2 years ago

O *Opportunity zones

@Alex Shin  

I think what @Spencer Gray was referring to is Opportunity Zones which allows to reduce taxable income but requires 5 to 10 years commitment to be eligible to take advantage of tax reduction (as long as other requirements are satisfied). 

Aside from that, options include DTCs, NNN leases, or syndications. Keep in mind if you coming into a syndication with a significant financial position, it may allow for a separate class shares.



Originally posted by @Alina Trigub :

@Alex Shin  

I think what @Spencer Gray was referring to is Opportunity Zones which allows to reduce taxable income but requires 5 to 10 years commitment to be eligible to take advantage of tax reduction (as long as other requirements are satisfied). 

Aside from that, options include DTCs, NNN leases, or syndications. Keep in mind if you coming into a syndication with a significant financial position, it may allow for a separate class shares.

 Yes! *Opportunity Zones. 

And good point about being able to leverage that amount of equity for a piece of the GP, major decision provisions, or a separate class of equity. 

@Alex Shin Op Zone reinvestment could be a great strategy. I can help you with that. They could 1031 into a deal. I have some contacts in your area that could help you place the investment. 

Opportunity Zones are dangerous. The promise of benefit relative to tax is so strong that it introduces moral hazard into the decision-making process. Not all, but very many of the deals being done are fundamentally flawed and will lose money, in which case you are trading losses of real dollars on a RE deal for savings on taxes.

Be very careful to underwrite this appropriately.

@Ben Leybovich seems like a hasty generalization. Just because something is new doesn’t mean it’s bad. There are several good operators out there executing sound strategies to run a QZ Fund. That said, I’d agree that there are more “bad apples” than good ones.

Originally posted by @Matt Ward :

@Ben Leybovich seems like a hasty generalization. Just because something is new doesn’t mean it’s bad. There are several good operators out there executing sound strategies to run a QZ Fund. That said, I’d agree that there are more “bad apples” than good ones.

I said: "...Not all, but very many of the deals being done are fundamentally flawed..."

To which you said: "I’d agree that there are more “bad apples” than good ones"

I suppose you agree with my hasty generalization...lol

I recommend they reach out to a multifamily office or an RIA (and maybe a commercial broker with vast exchange experience).  I admire the tenacity but an internet search is not the way to answer a $7M question.

@Ben Leybovich good point on that the risk is too great for investors to make a justifiable return. The amount in capital improvements as a percentage of the total is what kills most deals. From what I've heard from other operators @Matt Ward

Originally posted by @Alex Shin :

@Ben Leybovich good point on that the risk is too great for investors to make a justifiable return. The amount in capital improvements as a percentage of the total is what kills most deals. From what I've heard from other operators @Matt Ward

I easily spend $12,000 - $15,000 per unit on our re-positions, which is a lot. But, that's not nearly enough to meet the guidelines. OZ is more or less geared for new development and business.

@Alex Shin , It sounds like the money can be split up since there are two parcels, so they don't have to put all their eggs in one basket. 

I personally haven't found an opportunity zone deal I'm interested in yet, but I wouldn't throw the idea out. I know some smart people who are allocating funds there, and it offers great wealth preservation over the long term if you choose right. The biggest "loophole" I've seen is people putting their money in luxury projects located in areas that have already gentrified. CA is probably not the best state for it, though. I've seen interesting things going on in Texas and Arizona. They probably have original equity that they can put back into their pockets to reinvest elsewhere.

There's no perfect answer to what you're asking, otherwise everyone would be doing it. With $7mm, most people don't want to pay the taxes, and it's hard to entrust all that money to a syndicator. 

Probably not you cup of tea, given that you guys are brokers, but why not keep the assets and get decent property management in place? I’m assuming Korea town in LA is still gentrifying and improving, so probably will have good future appreciation. (Blue chip assets are usually worth keeping.) If it were me I’d seriously consider that. 

my2c

If it wasn't obvious enough, "Opportunity Zones Are Dangerous" was the hasty generalization.

Originally posted by @Ben Leybovich :
Originally posted by @Matt Ward:

@Ben Leybovich seems like a hasty generalization. Just because something is new doesn’t mean it’s bad. There are several good operators out there executing sound strategies to run a QZ Fund. That said, I’d agree that there are more “bad apples” than good ones.

I said: "...Not all, but very many of the deals being done are fundamentally flawed..."

To which you said: "I’d agree that there are more “bad apples” than good ones"

I suppose you agree with my hasty generalization...lol

Originally posted by @Matt Ward :
If it wasn't obvious enough, "Opportunity Zones Are Dangerous" was the hasty generalization.

Originally posted by @Ben Leybovich:
Originally posted by @Matt Ward:

@Ben Leybovich seems like a hasty generalization. Just because something is new doesn’t mean it’s bad. There are several good operators out there executing sound strategies to run a QZ Fund. That said, I’d agree that there are more “bad apples” than good ones.

I said: "...Not all, but very many of the deals being done are fundamentally flawed..."

To which you said: "I’d agree that there are more “bad apples” than good ones"

I suppose you agree with my hasty generalization...lol

 If there are more bad apples than good, an investment vehicle can and should be generealized as dangerous by a rational observer :)

Thank you all who reached out and provided valuable information. Seller is interested in rolling their funds into a syndication project most likely through a Monetized DST TIC structure. We're still pencilling out the details, however, if you have a deal you're looking to raise capital for, inbox me with the details on the project, your company, and fee structure to all parties involved. Thanks

We have an offer on the 33 unit development site next door as well so if you know anyone looking to buy a value add 32 unit apartment complex in Los Angeles, feel free to reach out.