Who here invests as an LP in ground up multifamily construction deals?

[Account Closed]

I am working for a sponsor who is raising capital for 2 ground up multifamily development projects. One is in DFW and the other is in New Braunfels. It seems like though they are great investments, though there are not too many people who actually dive into a private placement like this. 

Would be interested in hearing your thoughts on getting into deals like ours. 

[Chris Seveney]

Quote from @Account Closed:

I am working for a sponsor who is raising capital for 2 ground up multifamily development projects. One is in DFW and the other is in New Braunfels. It seems like though they are great investments, though there are not too many people who actually dive into a private placement like this. 

Would be interested in hearing your thoughts on getting into deals like ours. 

 Many will shy away because of the risk profile on that type of investment. Especially if its not a national builder/sponsor.

[Robert Ellis]

Quote from @Account Closed:

I am working for a sponsor who is raising capital for 2 ground up multifamily development projects. One is in DFW and the other is in New Braunfels. It seems like though they are great investments, though there are not too many people who actually dive into a private placement like this. 

Would be interested in hearing your thoughts on getting into deals like ours. 

 how big are the projects? 

[Nick B.]

I invested in a new apartment development in DFW at the end of 2019.

Then Covid happend. The prices of everything went up. The project was delayed and re-budgeted. Then interest rates went up...

Long story short, it was foreclosed in the beginning of June this year resulting in a total loss to investors like myself. 

[Jay Hinrichs]

Quote from @Nick B.:

I invested in a new apartment development in DFW at the end of 2019.

Then Covid happend. The prices of everything went up. The project was delayed and re-budgeted. Then interest rates went up...

Long story short, it was foreclosed in the beginning of June this year resulting in a total loss to investors like myself. 

And there you have it in a nutshell the risk of MF ground up..  Like in PDX from start to first tenant is going to be 2.5 to 3.5 years a lot can happen in that time frame..

[Dimitrius Kiritsis]

Hey @Account Closed! Investing in multifamily dev. deals are generally riskier than acquisitions due to construction and lease up risks. Additionally, it's possible that your money will be locked up longer than it would in an acquisition investment. That being said, dev. deal investors can be compensated higher returns than acquisition investors in light of the additional risk. 

It all boils down to the track record and reputation of the sponsor/developer. When vetting a potential dev. deal investment, pay close attention to the developers experience in the market and the number of deals they've successfully exited. 

Best of luck!

[Jay Hinrichs]

Quote from @Dimitrius Kiritsis:

Hey @Account Closed! Investing in multifamily dev. deals are generally riskier than acquisitions due to construction and lease up risks. Additionally, it's possible that your money will be locked up longer than it would in an acquisition investment. That being said, dev. deal investors can be compensated higher returns than acquisition investors in light of the additional risk. 

It all boils down to the track record and reputation of the sponsor/developer. When vetting a potential dev. deal investment, pay close attention to the developers experience in the market and the number of deals they've successfully exited. 

Best of luck!

one thing that always worries me about those deals.. is the lender can at their sole discretion stop funding the project and make the owners cash them out .. so there is that risk too..

[Eric James]

I invest in small multifamily as the sole owner. Am currently completing a 12 unit development. Would like the subsequent to be 20 some units.

[Robert Ellis]

Quote from @Eric James:

I invest in small multifamily as the sole owner. Am currently completing a 12 unit development. Would like the subsequent to be 20 some units.

 way to step it up great work, I'd encourage you to look at single plots of land and one large tract of land and one multifamily or mixed use that has 20 housing units. without plats and engineering if you are really feeling it go for midrise over 5 stories wait till you see how much you can make! 

[Cody Journell]

@Eric James this is where I'm focusing my efforts too. Here in VA there are a lot of very deep value or abandoned multifamily buildings. Seems like they're too big for the average joe to deal with and too small for the big boys. Still great equity and cash flow!

[Eric James]

Quote from @Cody Journell:

@Eric James this is where I'm focusing my efforts too. Here in VA there are a lot of very deep value or abandoned multifamily buildings. Seems like they're too big for the average joe to deal with and too small for the big boys. Still great equity and cash flow!

 Abandoned multifamily....wow. That would be great to find.

[Carlos Ptriawan]

Quote from @Account Closed:

I am working for a sponsor who is raising capital for 2 ground up multifamily development projects. One is in DFW and the other is in New Braunfels. It seems like though they are great investments, though there are not too many people who actually dive into a private placement like this. 

Would be interested in hearing your thoughts on getting into deals like ours. 

 You’d better build data center building that has CAGR of 20%.

[Carlos Ptriawan]

Quote from @Jay Hinrichs:

Quote from @Dimitrius Kiritsis:

Hey @Account Closed! Investing in multifamily dev. deals are generally riskier than acquisitions due to construction and lease up risks. Additionally, it's possible that your money will be locked up longer than it would in an acquisition investment. That being said, dev. deal investors can be compensated higher returns than acquisition investors in light of the additional risk. 

It all boils down to the track record and reputation of the sponsor/developer. When vetting a potential dev. deal investment, pay close attention to the developers experience in the market and the number of deals they've successfully exited. 

Best of luck!

one thing that always worries me about those deals.. is the lender can at their sole discretion stop funding the project and make the owners cash them out .. so there is that risk too..

 That’s the biggest risk 

[Jay Hinrichs]

Quote from @Eric James:

Quote from @Cody Journell:

@Eric James this is where I'm focusing my efforts too. Here in VA there are a lot of very deep value or abandoned multifamily buildings. Seems like they're too big for the average joe to deal with and too small for the big boys. Still great equity and cash flow!

 Abandoned multifamily....wow. That would be great to find.

just run over to Jackson mS you can find some there as well !!  Or Chicago ( South side) and a few of the rust belt states.  I like what your doing Eric.. You keep that up !!

[Jay Hinrichs]

Quote from @Carlos Ptriawan:

Quote from @Jay Hinrichs:

Quote from @Dimitrius Kiritsis:

Hey @Account Closed! Investing in multifamily dev. deals are generally riskier than acquisitions due to construction and lease up risks. Additionally, it's possible that your money will be locked up longer than it would in an acquisition investment. That being said, dev. deal investors can be compensated higher returns than acquisition investors in light of the additional risk. 

It all boils down to the track record and reputation of the sponsor/developer. When vetting a potential dev. deal investment, pay close attention to the developers experience in the market and the number of deals they've successfully exited. 

Best of luck!

one thing that always worries me about those deals.. is the lender can at their sole discretion stop funding the project and make the owners cash them out .. so there is that risk too..

 That’s the biggest risk 

has not been an issue lately but during the GFC holy cow you would see half built projects where the lender bailed.. the onwer lost the property.

[Carlos Ptriawan]

Quote from @Jay Hinrichs:

Quote from @Carlos Ptriawan:

Quote from @Jay Hinrichs:

Quote from @Dimitrius Kiritsis:

Hey @Account Closed! Investing in multifamily dev. deals are generally riskier than acquisitions due to construction and lease up risks. Additionally, it's possible that your money will be locked up longer than it would in an acquisition investment. That being said, dev. deal investors can be compensated higher returns than acquisition investors in light of the additional risk. 

It all boils down to the track record and reputation of the sponsor/developer. When vetting a potential dev. deal investment, pay close attention to the developers experience in the market and the number of deals they've successfully exited. 

Best of luck!

one thing that always worries me about those deals.. is the lender can at their sole discretion stop funding the project and make the owners cash them out .. so there is that risk too..

 That’s the biggest risk 

has not been an issue lately but during the GFC holy cow you would see half built projects where the lender bailed.. the onwer lost the property.

 In short , any rate/currency hike is causing liquidity crisis causing delay in ground up project even for project that was approved 2 4 years before the rate hike….

[Jay Hinrichs]

Quote from @Carlos Ptriawan:

Quote from @Jay Hinrichs:

Quote from @Carlos Ptriawan:

Quote from @Jay Hinrichs:

Quote from @Dimitrius Kiritsis:

Hey @Account Closed! Investing in multifamily dev. deals are generally riskier than acquisitions due to construction and lease up risks. Additionally, it's possible that your money will be locked up longer than it would in an acquisition investment. That being said, dev. deal investors can be compensated higher returns than acquisition investors in light of the additional risk. 

It all boils down to the track record and reputation of the sponsor/developer. When vetting a potential dev. deal investment, pay close attention to the developers experience in the market and the number of deals they've successfully exited. 

Best of luck!

one thing that always worries me about those deals.. is the lender can at their sole discretion stop funding the project and make the owners cash them out .. so there is that risk too..

 That’s the biggest risk 

has not been an issue lately but during the GFC holy cow you would see half built projects where the lender bailed.. the onwer lost the property.

 In short , any rate/currency hike is causing liquidity crisis causing delay in ground up project even for project that was approved 2 4 years before the rate hike….

plus build costs/  profromas run 3 to 4 years ago are wildly in accurate

[Paul Azad]

Quote from @Nick B.:

I invested in a new apartment development in DFW at the end of 2019.

Then Covid happend. The prices of everything went up. The project was delayed and re-budgeted. Then interest rates went up...

Long story short, it was foreclosed in the beginning of June this year resulting in a total loss to investors like myself. 

 Hi Nick, I've been reading for a year now that multifamily new construction has ground to a halt due to rapid increases in construction costs, insurance costs, financing costs and also due to mass overbuilding in 2019 to '23, causing huge supply in 2024 and 2025, which is now putting downward pressure on rent growth? and that the relative supply will drop precipitously, after '25 leading to a new golden age in multifamily by 2026 and 2027. What have you been hearing or reading? and have you invested in any MF recently. I want to invest in MF syndications but not too soon at high current prices.  thankyou

[Nick B.]

Quote from @Paul Azad:

Quote from @Nick B.:

I invested in a new apartment development in DFW at the end of 2019.

Then Covid happend. The prices of everything went up. The project was delayed and re-budgeted. Then interest rates went up...

Long story short, it was foreclosed in the beginning of June this year resulting in a total loss to investors like myself. 

 Hi Nick, I've been reading for a year now that multifamily new construction has ground to a halt due to rapid increases in construction costs, insurance costs, financing costs and also due to mass overbuilding in 2019 to '23, causing huge supply in 2024 and 2025, which is now putting downward pressure on rent growth? and that the relative supply will drop precipitously, after '25 leading to a new golden age in multifamily by 2026 and 2027. What have you been hearing or reading? and have you invested in any MF recently. I want to invest in MF syndications but not too soon at high current prices.  thankyou

Hey Paul,

last time I invested in MF syndication was in 2022.

I paused after that because any "deals" that came to me did not look like deals at all. They were based on assumptions that low floating rates would stay low forever and so would cap rate compression. Even when the rates went up higher, many syndicators still anticipated for them to go down in a year or so.

I don't expect things to change for the better any time soon. 
People who buy now say that the market has bottomed but I don't believe them.

So, I stay out of any new MF deals for the foreseeable future.

Of the deals I invested in 2021-22, at least one is heading for foreclosure and 3 more are getting close to the rate cap expiration that may trigger a foreclosure as well.