All Forum Posts by: Bobby Larsen

I’d second the delinquency reports. It’s always been part of our standard process but it was to identify a looming 1 or 2% hit. Right now I’m seeing properties actually getting hit with 20%+ delinquency. It’s very property specific. A 20%+ delinquency property can be right next door to a 1% delinquency property. Yes, part of it is market specific but we’ve found it’s been more manager specific so on top of delinquency reports, make sure to understand their leasing requirements. 2.5/3x income, 650+ fico score, etc. Once under contract, confirm the leasing requirements with a thorough lease audit. Haven’t seen a big impact on occupancy or rents but there’s definitely cases of high delinquency in all markets.

I’ll second Phoenix, although it probably the hottest market in the country right now. Employment growth has completely changed its exposure to cyclical jobs which caused it to get hammered during the GFC. Combine that with the population gains from people leaving California. Needless to say, it’s a very difficult market to buy in at the moment. Beyond that, I like Boise, Salt Lake City, and Colorado Springs.

The coastal states are on the list too but legislature is getting crazy.

How big is your loan expected to be? Agency debt seems to be the cheapest all around, even value-add now, however the best pricing will be if your loan is over $7 million.

For 10 years now, Denver has been the market where we’ve said “we want to be in this market” followed by “its so expensive, I feel like we’ve missed it”. Fast forward 12 months and each time we’ve looked back and said “we should have bought”. And we’re based in California where people have said the same thing since the beginning of time. When it comes to desirable locations, what is expensive today will likely be cheap tomorrow.

With that said, I feel like I’ve missed the opportunities in Denver and we’re looking elsewhere :)

@Andrey Y.

1031s can still be invested with syndicators (depending on the structure) but the good syndicators likely require the investment to be significantly larger than their normal minimum. Some still have pretty low minimums for that but from my experience, those syndicator are aggregating 30+ TICs from outside 1031s and are on the low end of syndicator quality. As mostly everyone has said, due diligence on syndicators is the most important but assuming you’re passively investment with a good syndicator, your time commitment is minimal. Return projections illusive. Sponsors that forecast the highest returns, look the most attractive but will probably realize the lowest returns.

@Gary B.  1% sounds reasonable for a loan of that size, if it's just for the sourcing/introduction.  If they are processing as well then 1.5-2%.

@Gary B.

Depends on how large ($) the deal is.

@Ryan G.

Absolutely. It’s best to look at a “going-in” cap rate based on in place income/projected expenses as well as a stabilized cap rate based on market rate income/projected expenses. Value-add or under managed properties will definitely trade at a lower in place cap rate but you want to make sure you’re being compensated for the risk and that compensation comes in the form of a higher than market stabilized cap rate. The more aggressive your assumptions need to be, the higher that stabilized cap rate should be.

Best to always double check those assumptions with another form of valuation like comparable sales. Compare that $75,000 per unit as well as on a per square foot metric as well. My assumption is that these are small units so while $75,000/u could seem cheap, it could be expensive on a PSF metric.

If I just used a simple rule of thumb 50% expenses which could even be low based on the $591 average rent, this is a 4.7% cap rate- at least if you’re trying to compare it to the cap rates on larger properties. Seems pricey for the vintage.

Closed on a 33 unit property in Portland on time and transitioned smoothly. I was nervous every step of the way, especially on the debt side, given how things have been changing so quickly.