All Forum Posts by: Charles Seaman

@Luis Herna My replies to your questions are below.

1.  It can vary widely from sponsor to sponsor, but I've generally heard anywhere between 10% and 50% of the GP for this type of arrangement.  Some sponsors will also charge a guarantor fee (this is typically equivalent to 1% of the loan amount).

2.  Equity is usually a requirement, but some will also want a fee on top of equity.  In order for the lender to approve your loan application, they want to know that the person or people they're underwriting will have the legal ability to make decisions for the property.  This typically requires them to have equity in the deal.

3.  The key is to have the lender underwrite as few people as necessary.  More underwriting leads to more legal searches, more costs, and more potential red flags.  So if a single person (or a few people) are being brought in to fill the loan guarantor role, then these are typically the only people that get underwritten by the lender and their experience will suffice.

Keep in mind that any experienced sponsor is taking on risks by working with a new operator, so this is why the answer to #1 varies so much.  If anything goes wrong, then it's ultimately the loan guarantor who's on the hook for it.  Some experienced sponsors will be hands off.  Others will be very involved because they're not going to sign on a loan for something that they don't control.  There's also the risk that a new operator is unable to raise the capital, so then the experienced sponsor carries the risk of not getting their earnest money back if the deal doesn't close.

@Karolina Powell Once you get into the commercial world, it's a bit different than residential real estate because it's very much a "buy at your own risk" situation.  Aside from the items that you already suggested, the only other thing you can use to verify the stated income is the seller's bank statements (not all sellers will release their bank statements, but some will).

The expenses will vary a bit from owner to owner, so you're better off reaching out to a local property management company to get an understanding of how much things cost, unless you plan to self-manage the property.  Taxes and insurance will be the biggest variables on the expense side.  Reach out to the local tax assessor to understand how a sale might impact your future property tax bills and reach out to an insurance broker to get an insurance indication.  These items are important so that you can budget accordingly and price the deal correctly.

What size properties are you focusing on?

@Yao Thompson Is your anticipated loan amount greater or less than $1MM?

@William Coet Unfortunately, there's no black and white answer.  As a syndicator, I can say that raising capital has become much more challenging since 2022, so many deals have closed in the last two (2) years that aren't fully funded and that are continuing to raise capital after the closing.

There's likely truth to the money being raised going towards reserves, which is a very important part of any syndication deal (running out of money is one of the big reasons why syndication deals don't go well).  However, those reserves are often most needed in the first year and not having sufficient reserves can put a deal in a bad position and that's where additional risk is created.  Insufficient reserves result in vendor bills piling up, value-add strategies running behind schedule, and returns being reduced, so it's important to have a clear picture about how well capitalized or undercapitalized a deal is so that you can truly assess the risk.

@Austin Carr I don't know of any local groups who analyze deals in person, but I host a free session each Saturday at 4:00 P.M. EDT that involves underwriting a single multifamily deal each time.  I'd be glad to send you the registration link if this might be helpful for you.

@Soup Nikk We bought four (4) deals in the first half of 2022 with adjustable rate bridge loans and those deals are in similar positions with suspended distributions because of the increased interest rates.  We're still doing deals, but we're only looking at deals with long-term, fixed rate debt.  We find that deals with attractive loan assumptions are the best ones out there right now.  Prices still need to drop a lot before new financing is a viable option in many cases.

@Soup Nikk As a syndicator myself, I can say that the scenario you described is common for deals that have adjustable rate mortgages (or funds that are largely invested in deals that have adjustable rate mortgages).  Most deals that were purchased with adjustable rate mortgages in the last two (2) years are experiencing issues with debt service.

@Pete Tychsen Speak with @Cristian Rocael Carrillo.  He can help you.

@Jessica Lontayo Pace is a well known figure, however he specializes in subject to deals and isn't as prominent in the multifamily space.  Are you looking to acquire smaller multifamily properties (less than 50 units) or larger multifamily properties (50+ units)?

@Owen Burton You're welcome