Rental Property Investor · Scottsdale, AZ · Member since 2010 · 390 posts · 599 votes
Greetings BP, its been a while and I wanted to post a brief update of our deal flow in the last 60 days:
1. Metro PHX - 168 unit mid 80s and late 90s former Marriot Residence Inn, off market deal purchased from Covid distressed seller. Purchased at $15.75M, unit mix is split between 2bd/1bd/studio all fully furnished with a $25k/door Marriott PIP less than 24 months ago. Fully converted to multifamily and currently running it as a hybrid. Property was empty at purchase in early December 2020 and as of of Feb 1 is 94% occupied and generated $290k in cash reciepts in January 2021. I underwrote this project to a year 1 $1.25M NOI and its looking like this will be closer to a $2M NOI.
2. Metro Tucson - 135 unit late 70s multifamily in an ideal Tucson location on Broadway. Off market deal through seller/broker relationship. Fantastic unit mix including nearly half 2/2. This complex had no RUBS in place and average rents at least $200 below market and produced a $500k NOI at time of purchase for $10.8M. Planned capex will include an exterior refresh and bringing rents to market. This will be an $900k year 2 NOI with minimal heavy lifting.
3. Metro Tucson - 236 unit 1980s in fantastic Catalina Mtn location, walking distance to the best retail in Tuc. Another off market deal purchased for $19M with nearly $1M NOI in place. Rents no less than $200 below market with no RUBS in place. This will be a year 2 $1.5M NOI.
All deals were done with local portfolio lenders at terms equivalent to Fannie but without any prepayment penalties.
Congrats, Serge...so amazing to follow your success. We are neighbors now, as we just closed a $36MM deal not far from one of yours. You have some good assets there and I’m glad you were able to pull that one off without our involvement. Like I said then, you didn’t need us, you have this 100% under control! Congrats!
Hey @Nick B. all me on these, I don't generally do partnerships or syndications for a number of reasons. I considered working with @Brian Burke on the larger 200 unit but it ultimately made the most sense to just go solo. These were all balance sheet loans with recourse.
Congrats, Serge...so amazing to follow your success. We are neighbors now, as we just closed a $36MM deal not far from one of yours. You have some good assets there and I’m glad you were able to pull that one off without our involvement. Like I said then, you didn’t need us, you have this 100% under control! Congrats!
@Matt Horn I used Washington Federal and First International, both statewide portfolio lenders and highly recommended if you can do recourse.
@Brian Burke thanks bro, I credit you and the lessons learned. If you want some good advice it is to read Brian Burke's book on Multifamily investing. And congrats on the big Tucson purchase and confidence in Southern Arizona. I am very confident that your investors will be rewarded.
@Michael Le the lease up is a story on the PHX property. I knew there was demand for this unit type and location but I underestimated the Covid related mass migration from CA. Numbers in a newspaper is one thing, but 10-20 check ins a day with no price resistance has been an amazing thing.
You’re a behemoth investor yet took the time to post your acquisition here. Congratulations on the what would have had to be a massive turnaround from hotel to multi-family!
@Serge S. This is a great success story. Congratulations. I am awed at this amount that a single investor can take down! WOW! Thanks for posting this and the stats
@Brian Burke is great too as I am a little guy that was able to do my first syndication with him last year and his company and morals are great.
The off market deals are impressive. I have a partner and we are purchasing an off-market 52 unit complex this year as well. Rents below market value, no RUBS (although not really done in my market), and plenty of value adds to implement.
@Jeffery Callis yes the Phoenix deal was a former Marriott Residence Inn. The conversion was not at all easy but luckily most of the heavy lifting was already done and I had city approval before closing but with some specific conditions that I have a year to fulfill. These conditions are completely unnecessary and will end up costing me around $300k unfortunately. But by the end of the day we will have the best possible entitlement which is commercial with density allowance meaning this can be run as a hotel, multifamily or anything in between. The reality though, is that it could have been run any way I wanted and the "conversion" is strictly for my exit as the end buyer will be an out of state multifamily investor. I want nothing to do with trying to predict or market a "hotel" exit. Also I would be very weary of this "hotel conversion" trend. Most hotels will simply never be conducive to being a multifamily and most larger cities will extract a pound of flesh in the process. On the other hand, IF you can find some distress in a landlord friendly city ... I did a small 70 unit extended stay "conversion" to multifamily and all it took was letter from my architect. There is a lot of hype around this model right now but I'd say buyer beware, without experience these projects are impossible to underwrite correctly.
@Eugene Tan the debt was one of the big facilitators of these deals. The PHX deal came to me as a "if you can close in 20 days" deal before seller CMBS issues. I had some sales in the pipeline but could not be certain of those closings or timing so I had the bank fund around 90% of the purchase (+ requested capex) through a reverse 1031 exchange. The reverse exchange just means that you buy the asset first (with or without debt) and the intermediary holds it until you bring in your cash. This gave me the time I needed to sell other property and bring that cash into the new deal and still get the benefit of the exchange. So at end of the day, all of these properties had a downpayment of between 25%-35%, rates in the low 3s and no prepayment penalty or origination fees. Having a flexible and knowledgeable lender on your side makes all the difference.
@Ola Dantis I have done two conversions in the same state, different cities and all I can say is YMMV. I have not had to do any structural conversion and probably would not buy a property that needed that, life is too short. I am using a sophisticated GC for the road work and city planning. Its a challenge underwriting these assets and projects, I will admit that I vastly missed on both revenue and expenses in my DD underwriting. The pure multifamily asset on the other hand is very simple to underwrite and execute in comparison.
@Jai Reddy and @Carlos Gonzalez my story is out there, check out the 2-3 BP Podcasts and various other podcasts out there.
In short I started in 2008 with Arizona SFRs, grew that business through the great recession and then slowly sold out of SFR and into small multifamily in secondary markets. I was a 28 yo with a $30k loan from family used to buy a $50k SFR as my first deal. Every SFR I purchased cleared out my account to close to 0. I drove the city buying used appliances and materials on Craigslist. I used cheap, unqualified and unlicensed contractors. I deferred all major personal spending and drove an old Chevy Truck so that every dime earned at my day job could go to buying undervalued RE all around me. I chose risky projects with very high cash on cash returns and held until they were stable and attractive for the next buyer. I sold out of those slowly and into larger multifamily, also in secondary, unknown and risky/cyclical markets. Once those were stabilized and the multifamily market fully recovered, I was able to sell out of the secondary markets (at primary market prices) and move back into primary growth markets with large multifamily as the vehicle of choice. Primary lessons learned along the way:
1. Do something that others are not doing. Pick a niche that you can dominate and specialize in a way that builds barriers to entry.
2. Only pick the very best projects. Real Estate is not for fun or vanity unless you happen to be a Russian Oligarch.
3. Never stop learning. Never get set in your ways. Be ready to cross asset classes and borders. Once educated enough to be dangerous, listen to everyone but trust yourself. Second guessers don't last long in RE.
4. Understand market/asset class cycles like your life depends on it. Specifically, understand the business cycle in your specific state/city. News, politics, tax policy all matter. Be a real estate historian, history repeats itself as do cycles.
5. Get in front of the cycle and the long term trends. Learn how relevant statistics today drive future results tomorrow.
6. Just do it! Some of my worst RE projects led to some of the best relationships and lessons learned. Knowledge is worth so much more than money, never forget it.
7. Never stop networking. Value and respect everyone's opinion. Nobody is your "competition", this is a land of plenty and there is enough gravy for everyone. Be happy for other's success, show gratitude and respect and don't forget that nobody owes you anything. Most people are just one connection away from success. Keep looking for that connection and if you don't find it then be that connection for someone else.
8. Bigger is better. This is simple fact you hear again and again. The point is not to skip the small stuff along the way, its to keep your eyes on the prize. The smaller, self managed RE should be seen as a conduit to the larger more passive assets. I learned the hard way that a portfolio of small assets is not sustainable or profitable in the long run.
9. Be a long term thinker. What will your prospective asset look like next year? What will your tenant class be in 3 years? Who will want to buy your complex in 5 years and why?
