All Forum Posts by: Carlos Ptriawan

Quote from @Guy Idan:

@Brian Burke - Dropping a question on you as you are well versed in this world - It seems that Ashcroft has an LTV of about 80% at the moment, or 78% if you take out the $14m loan ashcroft themselves gave. For my personal properties, I like to have 65-60% LTV, so 78-80% LTV during a time when the properties were purchased of record low interest rates, and with fluctuating interest rate, seems extremely irresponsible and almost foolish. 

Do most syndicators use these LTV's and is it common or did Ashcroft make a big mistake on that one?

Appreciate your feedback!


 

I won’t opine on whether Ashcroft made a big mistake—their investors will ultimately be judge, jury, and executioner based on the final outcome.  Even if I did comment, my Monday morning quarterbacking should be dismissed as inadmissible because, for lack of a better definition, I’m a competitor of theirs.

But I can speak to my opinion as an operator, in a general sense, not specific to Ashcroft because I’m not familiar with the financing of these assets.

Borrowing with short maturities dramatically increases risk, always. Ten years into a bull run amplifies that risk. Doing so with a high LTV amplifies that risk even further.

Investing in a syndicate comes with risk and the idea is that investors should seek a risk adjusted return.  By that, I mean that the returns you expected should have been significantly higher than the returns from a similar investment with a more conservative financing structure. Was it?

The problem I see is passive investors frequently don’t invest on a risk-adjusted basis.  Instead, they invest in the deal that projects the highest return.  And how do you get there?  High leverage.  Multiple share classes.  Preferred equity.  Mezzanine debt.

This pushes groups to finance this way because “that’s what sells.”  It’s no accident that many of the groups you see today running into serious trouble are groups that acquired a lot of assets near the market peak using tools such as this that juiced projected investor return. 

And to somewhat answer your question, a LOT of buyers were financing this way. Before I stopped buying in 2021, after being outbid by millions of dollars on a regular basis, I started asking brokers "how many of the other buyers are using bridge debt?" Their answer: "All of them." (I was underwriting to 60-65% LTV with one share class and no subordinate mezz/pref.) So I started selling off my portfolio. Among the groups bidding on my properties, how many were using bridge debt? Most of them.

On the other hand, groups that used more conservative finance structures didn’t grow as fast because, in part, the investors weren’t fueling them to the same extent.  Also in part, because they couldn’t underwrite to as high a price as the higher-risk groups.  And in part because groups that finance conservatively tend to buy conservatively, which doesn’t result in much when a market is topping out.

And just a comment about your statement that the Ashcroft properties have an "LTV of 80% at the moment." Then you said "80% LTV…when the properties were purchased." Depending on when these properties were purchased, along with a handful of other factors, these two statements could be mutually exclusive. Multifamily values have fallen somewhere between 20 percent and 40 percent since 2022, meaning that the LTV today could be greater than 80%, and very easily could exceed 100%.

Quote from @Brian Burke:

Quote from @Guy Idan:

@Brian Burke - Dropping a question on you as you are well versed in this world - It seems that Ashcroft has an LTV of about 80% at the moment, or 78% if you take out the $14m loan ashcroft themselves gave. For my personal properties, I like to have 65-60% LTV, so 78-80% LTV during a time when the properties were purchased of record low interest rates, and with fluctuating interest rate, seems extremely irresponsible and almost foolish. 

Do most syndicators use these LTV's and is it common or did Ashcroft make a big mistake on that one?

Appreciate your feedback!


 

I won’t opine on whether Ashcroft made a big mistake—their investors will ultimately be judge, jury, and executioner based on the final outcome.  Even if I did comment, my Monday morning quarterbacking should be dismissed as inadmissible because, for lack of a better definition, I’m a competitor of theirs.

But I can speak to my opinion as an operator, in a general sense, not specific to Ashcroft because I’m not familiar with the financing of these assets.

Borrowing with short maturities dramatically increases risk, always. Ten years into a bull run amplifies that risk. Doing so with a high LTV amplifies that risk even further.

Investing in a syndicate comes with risk and the idea is that investors should seek a risk adjusted return.  By that, I mean that the returns you expected should have been significantly higher than the returns from a similar investment with a more conservative financing structure. Was it?

The problem I see is passive investors frequently don’t invest on a risk-adjusted basis.  Instead, they invest in the deal that projects the highest return.  And how do you get there?  High leverage.  Multiple share classes.  Preferred equity.  Mezzanine debt.

This pushes groups to finance this way because “that’s what sells.”  It’s no accident that many of the groups you see today running into serious trouble are groups that acquired a lot of assets near the market peak using tools such as this that juiced projected investor return. 

And to somewhat answer your question, a LOT of buyers were financing this way. Before I stopped buying in 2021, after being outbid by millions of dollars on a regular basis, I started asking brokers "how many of the other buyers are using bridge debt?" Their answer: "All of them." (I was underwriting to 60-65% LTV with one share class and no subordinate mezz/pref.) So I started selling off my portfolio. Among the groups bidding on my properties, how many were using bridge debt? Most of them.

On the other hand, groups that used more conservative finance structures didn’t grow as fast because, in part, the investors weren’t fueling them to the same extent.  Also in part, because they couldn’t underwrite to as high a price as the higher-risk groups.  And in part because groups that finance conservatively tend to buy conservatively, which doesn’t result in much when a market is topping out.

And just a comment about your statement that the Ashcroft properties have an "LTV of 80% at the moment." Then you said "80% LTV…when the properties were purchased." Depending on when these properties were purchased, along with a handful of other factors, these two statements could be mutually exclusive. Multifamily values have fallen somewhere between 20 percent and 40 percent since 2022, meaning that the LTV today could be greater than 80%, and very easily could exceed 100%.

Brian,  using your thought process that value from when these folks bought the buildings have retreated 20 to 40% and since we know they were bought with Max debt 80% as you mentioned they need to do this to show highest returns so they can compete with others showing those returns as well.  

Now given the situation of NO equity right now to negative equity it seems throwing in more cash would be digging a deeper hole and how is it realistic that these props will go up not only what they are under water today but the added capital JUST to get your capital back forget about any return.

Just curious seems like simple math based on your opinions of current values in the B C class MF in the areas I have to assume these are.. I know its all assumptions ..

Seems to me the play today is simply be a preferred equity investor.  Instead of a cap call maybe ask to join the preferred so at least you get to offset your loss's .. ???  these investments get complicated thats for sure..

I have a few clients of mine that were in MF in PHX area and they did the same thing you did when they were getting offers at 3 caps they sold out.. Now they have all this cash to go into new deals with ME so I like that personally :)

Quote from @Carlos Ptriawan:

Quote from @Jim K.:

Over the last decade or so, my wife and I have put together a nice little rental portfolio, we've really grown as landlords and property managers, and we have a nice little life that's just getting nicer. Net rental income has almost completely replaced what we used to make in our jobs. We can see the finish line, when we call it quits, sell and put out money into more stable assets, retire to a nice sunny place far from Pittsburgh, and enjoy our lives.

Our one regret is that we didn't have children. It just wasn't in the cards for us. In the beginning, we didn't really know what we were missing, but later, as the assets started to grow in place, we both realized that if we did have children, and we left them what we had, we would more or less be inviting destruction and misery on their heads in most cases. Raising kids when rich is a hard, thankless job, and most rich parents fail miserably at it. I can only imagine in stark terror the mistakes I would have made as a young man if I had had the money to make them.

For those of you who have met with some success and have children, what's the end plan? I know there are some guys here who stay up nights figuring out how to pass generational wealth to their children successfully, looking at you, @Steve Vaughan.

What are the rest of you doing?

 In our culture housing is generational wealth, my grand-dad gave a house to my mom/dad , my mom/pop gave me houses and some inheritance, and I bought it over here and will give it to kids too....

it has been in tradition for 101 years lol....some cultures not just passing a house but also passing a business/company too, look at South Korea.

if you think about in 2023 you are late hundred years.

Oh, wow. Well, you see, Carlos, yours is not the only culture where housing is generational wealth. We Greeks do it, too, they even made a movie about how that works with us.

And my people were writing philosophy when yours were---

(SORRY, GOTTA STOP THAT!!!)

Over the last decade or so, my wife and I have put together a nice little rental portfolio, we've really grown as landlords and property managers, and we have a nice little life that's just getting nicer. Net rental income has almost completely replaced what we used to make in our jobs. We can see the finish line, when we call it quits, sell and put out money into more stable assets, retire to a nice sunny place far from Pittsburgh, and enjoy our lives.

Our one regret is that we didn't have children. It just wasn't in the cards for us. In the beginning, we didn't really know what we were missing, but later, as the assets started to grow in place, we both realized that if we did have children, and we left them what we had, we would more or less be inviting destruction and misery on their heads in most cases. Raising kids when rich is a hard, thankless job, and most rich parents fail miserably at it. I can only imagine in stark terror the mistakes I would have made as a young man if I had had the money to make them.

For those of you who have met with some success and have children, what's the end plan? I know there are some guys here who stay up nights figuring out how to pass generational wealth to their children successfully, looking at you, @Steve Vaughan.

What are the rest of you doing?

I am a LP in over 50 deals invested over the years so could name groups that are capital calling or losing capital calling right now.  Some of splashier defaults/foreclosures seems to be tied to Sumrock and his mentees including the Applesway guy but WWC and GVA is pretty much selling large chunks of their portfolio at a loss right now.  There is also a whole ecosystem of capital raisers for these people that have basically misled investors in their involvement in the GP and dont have much to offer as deals go bad.  I could name dozens and that are active in the BP forums.  

Rather than recreating the wheel, I would just go to LP centric forums/groups like 506b or PIC group that dont allow GPs or capital raisers so people can post their bad experiences without intimidation.   Wall street Oasis also but that seems to be geared more toward industry insiders than from the LP perspective. 

Quote from @Chris Seveney:

Quote from @John Cho:

I am a LP in over 50 deals invested over the years so could name groups that are capital calling or losing capital calling right now.  Some of splashier defaults/foreclosures seems to be tied to Sumrock and his mentees including the Applesway guy but WWC and GVA is pretty much selling large chunks of their portfolio at a loss right now.  There is also a whole ecosystem of capital raisers for these people that have basically misled investors in their involvement in the GP and dont have much to offer as deals go bad.  I could name dozens and that are active in the BP forums.  

Rather than recreating the wheel, I would just go to LP centric forums/groups like 506b or PIC group that dont allow GPs or capital raisers so people can post their bad experiences without intimidation.   Wall street Oasis also but that seems to be geared more toward industry insiders than from the LP perspective. 

 Interesting as I am seeing more "fund of fund" models which are really just people raising money for these sponsors (will not get into legalities of this on whether it is in a gray area or not). 

I am curious to hear what other thoughts are on this compared to working with a broker-dealer / advisor who invests in alternatives? I have found the investment advisors due diligence has been pretty significant because they have the fiduciary duty (while holding FINRA license) compared to FoF manager. Not saying all FoF managers should be avoided, i know a few who I think do a great job on underwriting, but several I have seen are literally just marketing / sales people.

 I avoid them. If I wanted cryptic levels of communications and management where I am even more layers away from the RE asset/deal itself, I could invest in Wallstreet where it seems to be slightly more regulated.

A GP that really needs (vs optional) to rely on FOF players is already a flag for me.

Quote from @Carlos Ptriawan:

Quote from @Flavia Vangelotti:

Hello again! My husband and I have narrowed down our options and I would love some feedback from all of you wonderful people.  To give some background, we currently live in San Diego and have 3 children between the two of us. We own our home with a pretty low rate from 2020 and also put around $800/month towards my mom's apartment rent. We have enough capital now to purchase a property and and we are blessed to have capital left over every month as well, which we typically invest in CDs.

Here are our current options: 

1-Buy a turnkey place that has nothing to do with mom for cash flow of $200-300/month plus potential appreciation, overall ROI of 15-20%

2- Ask mom if she would move closer to us in San Diego, buy a small place here, have zero cashflow but at least we have another property in a great appreciating market and are no longer spending the $800 on her rent

3- Buy a place for her in Orlando, same scenario as above but obviously a lesser mortgage since its FL and not CA

We found a great turnkey company we liked so if we do option one I think we will use them, but it just feels like if we do that we will still be tossing away what we currently pay on her rent. 

Would also love any financial advisors you have previously worked with and had a great experience with. Thank you so much! 

buy SF with ADU in san diego

Something like that here in San Diego would be insanely expensive unfortunately

So, I recently helped a client look for a home. It was a super cool single-family property, yet for some reason, the listing hadn't received any offers on offer day. After a closer look into the disclosures, it turns out that the ADU (permitted, junior ADU) was being rented for supplemental income on Airbnb. Unfortunately, one of the Airbnb guests committed suicide in the ADU, and under CA law, the owner has to disclose the event for at least 5 years.

The property is currently sitting on the market, listed at 1.5 million, and should sell for 1.7 million if there wasn't a death on the property. I'm a little mind blown at the fact that they might get 1.4 million for it (300k under market value) due to a guest/stranger who committed suicide, where the owners now have property that has a stigma around it. Circumstances completely out of the owners' control...

I share this because it's not something you might consider when innocently renting out an Airbnb for some passive income. You really have no control over the guests...

Hello again! My husband and I have narrowed down our options and I would love some feedback from all of you wonderful people.  To give some background, we currently live in San Diego and have 3 children between the two of us. We own our home with a pretty low rate from 2020 and also put around $800/month towards my mom's apartment rent. We have enough capital now to purchase a property and and we are blessed to have capital left over every month as well, which we typically invest in CDs.

Here are our current options: 

1-Buy a turnkey place that has nothing to do with mom for cash flow of $200-300/month plus potential appreciation, overall ROI of 15-20%

2- Ask mom if she would move closer to us in San Diego, buy a small place here, have zero cashflow but at least we have another property in a great appreciating market and are no longer spending the $800 on her rent

3- Buy a place for her in Orlando, same scenario as above but obviously a lesser mortgage since its FL and not CA

We found a great turnkey company we liked so if we do option one I think we will use them, but it just feels like if we do that we will still be tossing away what we currently pay on her rent. 

Would also love any financial advisors you have previously worked with and had a great experience with. Thank you so much!