84 Unit Complex- How would you structure the deal?

Multi-Family and Apartment Investing
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84 Unit Complex- How would you structure the deal?

Canesha Edwards
Developer · Atlanta, GA · Member since 2014 · 475 posts · 424 votes

Good morning all,

I have a unique opportunity with an 84 unit complex in Atlanta. I received a call from one of owners of the complex. The group has owned the complex for 20+ years, and while they aren’t in a hurry to sell, I get the sense that if made the right offer, the would happily sell. The owners are willing to sit down and talk with me but only once I prove I’m a qualified buyer and can get the deal done.

Here’s where the problem comes I’ve never done a deal like this and I don’t have the capital for the down payment. I would like to bring on equity investors to raise the down payment. I was thinking of a 70/30 split. Does that seem fair? I will manage the property instead of outsourcing to a PM. The property is 15 minutes from my house. I’ve reached out to an SEC lawyer to see my options are here and if needed I have the funds to cover all SEC associated fees.

I understand all the odds are pretty much stacked against me but passing this deal off to another investor for a fee isn’t an option I’m considering right now. I’m looking for solutions to my problems to get the deal done.

All feedback is greatly appreciated.

Canesha

3Reply
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Most Popular Reply

Michael Ealy
Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes
6y
Originally posted by @Trent Chance:

@Canesha Edwards I'd still take an acquisition fee if I were you. I think it's standard and shouldn't affect your equity.

Maybe see if @Michael Ealy has any ideas for you to find a partner or on structure

 Thanks Trent for the mention.

Canesha, since you can't qualify as a buyer by yourself, be HONEST with the seller and tell him that you can't. However, tell him that you can line up high networth individuals you know who can partner with you on this deal.

Ask him basic things that will give you an idea whether this deal makes sense or not. Ask him the average rent per unit. Research the area (is it A, B, C, D, or F). Ask him old is the building (or you can search public records to find out when the building was built). Based on that, you can have an idea whether the deal is a good one or a bad one based on his asking price.

Once you know the deal has potential, approach the other high networth individuals you're talking about. 

Are these high networth people experienced apartment investors? Or are they just there to put up the money? As @John Casmon and @Greg Dickerson point out, in order for you to even get bank financing on this, they will require 2 things which you don't have (or actually 3):

1. If you want to borrow $1 Million, you need to have a net worth of $1 MILLION

2. You need apartment investing experience (specially since we're talking 84 units here)

3. Banks will also have some LIQUIDITY requirements. Depending on the lending institution you talk to, they will require 6 months of mortgage payments + 20% (or sometimes 25%) down as cash in a bank account you control

In other words, you need to structure it this way:

A. You need an experienced apartment investor as partner who can be on the loan - likely 50% partner

B. You need 1 or 2 money partner - likely 40% partner

C. You - 10% partner

Makes sense?

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  • Azeez K.
    Investor · Atlanta, GA · Member since 2013 · 646 posts · 392 votes
    6y

    Hi @Canesha

    Can you list the NOI and the cost per unit? Also you mentioned its 15 mins from Atlanta which could be hit or miss. Feel free to connect w me on the same

    Good luck

    0Reply
  • Canesha Edwards
    OP
    Developer · Atlanta, GA · Member since 2014 · 475 posts · 424 votes
    6y

    Update:

    I was able to find a GP to co-sponsor the deal. We submitted an LOI and are currently in negotiations with the seller.

    The seller is asking for a 1031 exchange, so I’m trying to get up to speed with those type of transactions.

    Does anyone have any recommend reading or reference materials on the subject?

    Also, I'm starting to get more pocket listings from agents in the multi family space. Anywhere from 10-100 units in Atlanta. I have a large network of SFR buyers, but I'm struggling to find serious MF buyers. I've always heard that if you find a good deal, the money will come......so I'm thinking about sending out LOIs on properties and then finding a partner to close. Any thoughts on this approach?

    Thank you to everyone who has provided insight! I greatly appreciate it!!!

    Happy Investing!

    Canesha

    4Reply
  • Jared Carpenter
    Specialist · USA · Member since 2016 · 226 posts · 51 votes
    6y

    @Canesha Edwards

    Congrats, wonderful news.

    Could you share with me/us the process, steps you took..and if you're comfortable the terms you structured to find a GP to co-sponsor the deal? 

    0Reply
  • Canesha Edwards
    OP
    Developer · Atlanta, GA · Member since 2014 · 475 posts · 424 votes
    6y

    @Jared Carpenter

    Sure. A fellow investor friend of my mine works for an investment company that has over 1800 units. I reach out to him to see if it’s something they would be interested in. Turns out they looked at the property in the past, so having a way to be direct to the owner was perfect.

    I’ll get 5% equity of the GP split ( it will be a 75/25 LP/GP split) and a percentage of the acquisition fee, and I get to be hands on throughout the entire process. Being that I don’t have any experience in syndication or the liquidity to get the deal done on my own, this worked out great for me.

    I’m the POC for the seller and I’m gaining tons of hands on experience which is the best way to learn.

    Happy Investing!

    Canesha

    5Reply
  • Jared Carpenter
    Specialist · USA · Member since 2016 · 226 posts · 51 votes
    6y

    @Canesha Edwards

    What a fantastic outcome. Is the 1,800 unit firm nationwide or do they focus solely on ATL?

    I understand form what you’ve said that  you’re negotiating a PSA currently, assuming that all works out will your or the firm be running the escrow and close of the property?

    Do you plan to hold onto this asset for a while, or is it a value add in which you plan to sell or refi in a few years?

    0Reply
  • Canesha Edwards
    OP
    Developer · Atlanta, GA · Member since 2014 · 475 posts · 424 votes
    6y

    @Jared Carpenter

    The firm has 1800 units between GA and Florida. They will be the ones closing on the loan. Currently, a lender wouldn’t give my company a second look because of my inexperience. However, I will be listed in the PM as a co-sponsor.

    This will be a value add play, and we’ll look to sale once the property is stabilized in say 3-5years.

    0Reply
  • James Dickens
    New Iberia, LA · Member since 2017 · 133 posts · 89 votes
    6y

    @Canesha Edwards That's Outstanding! Great Work and I hope it all goes well for you. It's good to hear that getting into Syndication can be done without going the Guru route to get started. It just takes a bit of grinding and networking to get it done. All the Best!

    0Reply
  • Canesha Edwards
    OP
    Developer · Atlanta, GA · Member since 2014 · 475 posts · 424 votes
    6y

    @James Dickens

    Thank you for your kind words and encouragement. I’ve learned that hard work and dedication is the key to over coming any obstacle.

    Happy Investing!

    Canesha

    1Reply
  • Michael Doub
    Rental Property Investor · MD · Member since 2019 · 5 posts · 3 votes
    6y

    Congrats Canesha ! Thanks for sharing and the updates.  

    1Reply
  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    6y

    @Canesha Edwards, The sellers desire to do a 1031 exchange will not change the structure and performance on your side at all.  They are simply wishing to document the exchange on the settlement statement and have a qualified intermediary hold their proceeds while they find and purchase their replacement property.  

    You can cooperate with their desire to do a 1031 and it doesn't change things for you at all.  But.... Since they have to find a replacement property within 45 days from the closing of the sale you could be a hero to them (and maybe get some negotiation concession) if you agreed to a floating or delayed closing date contingent on them finding their suitable replacement.

    The 1031 Investor5137 Reviews
    WebsiteView Page
    1Reply
  • Canesha Edwards
    OP
    Developer · Atlanta, GA · Member since 2014 · 475 posts · 424 votes
    6y

    @Dave Foster

    Dave...thank you for the simple explanation. I completely understand now. What I didn’t know is that the seller have 45 days to find another property.

    From the little I know about the seller he has multiple business ventures and he’s up in age. He’s owned this property since ‘89. I get the feeling he is trying to liquidate. If he doesn’t find another property within the 45 days, what’s the penalty?

    0Reply
  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    6y

    @Canesha Edwards, if he doesn't find a suitable replacement he pays the tax due.  

    The 1031 Investor5137 Reviews
    WebsiteView Page
    0Reply
  • Ola Dantis
    Multifamily Syndicator · Houston, TX · Member since 2016 · 1k+ posts · 2k+ votes
    6y

    @Canesha Edwards 

    First of all, I have a Seller Template we utilize for these kinds of deals and it works. 

    Realistically, I won't advise you to try to take this deal down yourself, as it may be a stretch. In fact, it is a stretch. 

    Best scenario: If this is a deal, meaning the Seller is not asking for too much right off the bat, then find a syndicator who is prolific in Atlanta (or wherever this deal is) and buys in that submarket, and wholesale the deal to them THEN use your proceeds as investment in the deal so that you can learn alongside that syndicator. 

    The mechanics involved in a deal like this can be overwhelming for a first-timer; however, if you successfully start with one (wholesaling it), and the deal turns out to be a good one, your whole life and perspective will change for good.  

    Remember, it is ok to own 1% of $5MM than 100% of $0M. Good luck and PM if you need that SF Template. 

    1Reply
  • Dave Steadman
    Fort Lauderdale, FL · Member since 2016 · 22 posts · 8 votes
    6y

    This was one of the most informative threads on the logistics and nuances of commercial investing.Canesha big up for getting this opportunity. Any good books on commercial multifamily investing?

    1Reply
  • Adam Biya
    Specialist · DC Metro Area - MD · Member since 2017 · 16 posts · 5 votes
    6y

    @Canesha Edwards

    Thanks for posting and sharing this valuable info Canesha! I’m a former Deloitter as well :-).

    Look forward to hearing how the deal progresses, and keeping my fingers crossed for a smooth closing!

    Adam

    0Reply
  • Canesha Edwards
    OP
    Developer · Atlanta, GA · Member since 2014 · 475 posts · 424 votes
    6y

    @Ola Dantis

    I talked about this in a previous post. I was able to find a co-sponsor for the deal and we’re negotiating with the seller currently.

    @Dave Steadman

    Thanks. Everyone has been so helpful in sharing their knowledge. I don’t have a particular book that’s a go to for me and I honestly don’t read as much as I should. I can attribute most of my knowledge to reading bigger pockets post, great people willing to answer my questions, and honestly putting into practice what I’m learning. I love podcast though. Technology has made it so much easier to consume information.

    1Reply
  • Canesha Edwards
    OP
    Developer · Atlanta, GA · Member since 2014 · 475 posts · 424 votes
    6y

    @Adam Biya

    It’s always nice to meet fellow Deloitte Alum. I’ll make sure to keep the post updated as the deal progresses.

    Happy Investing!

    Canesha

    1Reply
  • Scott Mac
    Austin, TX · Member since 2019 · 5k+ posts · 5k+ votes
    6y

    @Canesha Edwards

    Hi Canesha,

    That's what I call hitting a home run in the 9th inning--GREAT JOB!

    I'm sure you'll learn a lot and make a nice profit in the process also.

    Good Luck!

    0Reply
  • Canesha Edwards
    OP
    Developer · Atlanta, GA · Member since 2014 · 475 posts · 424 votes
    6y

    @Michael Ealy

    Thank you so much for the insight. I’ve gain so much knowledge from reading your other post. I was able to find a co-sponsor for the deal and we’re negotiating with the seller.

    Happy investing!

    Canesha

    1Reply
  • Canesha Edwards
    OP
    Developer · Atlanta, GA · Member since 2014 · 475 posts · 424 votes
    6y

    @Scott Mac

    Thank you for the kind words. I have learned a lot already and we’re still negotiating.

    Canesha

    0Reply
  • Michael Ealy
    Developer · Cincinnati, OH · Member since 2018 · 1k+ posts · 3k+ votes
    6y
    Originally posted by @Canesha Edwards:

    @Michael Ealy

    Thank you so much for the insight. I’ve gain so much knowledge from reading your other post. I was able to find a co-sponsor for the deal and we’re negotiating with the seller.

    Happy investing!

    Canesha

     Congrats Canesha!

    And they say that one cannot start doing BIG deals right away but if this deal works out, you will prove those people wrong!

    Let me know if you need anything else.

    0Reply
  • Zach Griffin
    Investor · Fort Lauderdale, FL · Member since 2014 · 24 posts · 20 votes
    6y

    Congrats Canesha! Way to persevere and figure out how to make it happen. 

    0Reply
  • Andrew Pfleger
    Rental Property Investor · Alton, IL · Member since 2018 · 32 posts · 22 votes
    6y

    @Canesha Edwards I've gone through a similar scenario. In the last year I found a 56 unit property that I wanted but did not have the capital to acquire myself. Fortunately I knew of someone who was willing to take a look at this deal with me to see if it made since for him. I wasn't sure of how we'd structure the deal but I learned a ton by going through the process. 

    Since we did not have the cash needed we borrowed our buy-in from the main investor (30% of the cash to table) and we used his financial statement to make the deal work. We own 30% of a 56 unit property with 0 cash at closing. It just comes down to finding the right investor. We had a track record of building a business or 45-50 units on our own prior to the discussion on buying this property. So at the very least he knew we were serious and that we had an idea as to what we were doing. 

    The other thing, however, was we ended up just being semi-involved after the closing date. I check in on the property, take care of a few things but for the most part the bigger investor already had systems in place that he wanted to utilize since it was his investment he was wanting to protect (I understand). He just wants to keep things streamlined with all of his properties. I think he has like 12-1300 units over 5 states. 

    2Reply
  • Canesha Edwards
    OP
    Developer · Atlanta, GA · Member since 2014 · 475 posts · 424 votes
    6y

    @Andrew Pfleger

    Thanks for the insight. What would you say is the most valuable thing you learned going through the process?

    Yeah, the GP already has systems in place, lenders, etc, so I’m just going along with the flow. I’m just happy to be a part of the process. I’m gaining hands on experience in the world of syndication deal structure, seller interaction, underwriting, etc. Whether the deal closes or not, I’ll be able to go after the next deal with more confidence and experience. It’s a win/win for me either way.

    0Reply
  • Canesha Edwards
    OP
    Developer · Atlanta, GA · Member since 2014 · 475 posts · 424 votes
    6y

    @Zach Griffin

    Thank you for your kind words.

    Happy Investing!

    Canesha

    0Reply
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