Analyzing a Bulk (Fractured) Condo Deal vs Apartment Complex

[Kurt Bender]

I wanted to get some feedback from other members on the analysis of a purchasing a fractured condo deal vs a full apartment complex. Just to make sure everyone is understanding me, this is an example:

Purchasing 20 units as a bulk (fractured) condo sale out of a 100 unit condominium building.

vs.

Purchasing a full apartment complex, of let's say 16 units, where you own the land, structure of the building, common elements, and all the units inside.  

Let's assume that by underwriting both of these deals the NOI is the same, and they share the same upside in rents.

My question is how would you value these deals differently, if at all? Would you assign a different CAP rate to offset additional risk?

[Mark A.]

Not sure if you listen to the Old Capital Podcast but they just discussed this - in Episode 87 Paul Grimme talked about the risks vs benefits of a Fractured Condo. The take away point was that you really only want to buy a fractured condo if 1) you purchase enough units to control the condo association (so they don't decide to go in a direction that hurts you, like preventing rentals in the future) and 2) your goal is to slowly buy more of the units as they become available. 

I've looked at several Fractured Condo sales but, to answer your specific question, I'd lean towards buying the full apartment building so that you had full control.