All Forum Posts by: Chase McArthur

@Jeffrey Maitles

Absolutely, student housing is an amazing investment! Nows a great time to get involved. Solid fundamentals, excellent ROI, and great insulation from economic corrections.

Being in investment sales, I am seeing alot of private equity and institutional clients shifting their strategies in 2019 to the student housing sector as well as the senior and workforce housing sectors. With a market correction on the horizon, they are mitigating risks by diversifying into these less volatile properties. In most cases these properties offer value add plays as they have experienced deffered maintenance as well as outdated amenities.

With the relaxation of regulations on student lending, more people are attending college which in turn is creating a higher demand for student housing, increasing occupancy rates while ensuring solid rent growth projections for the coming years.

The downside of this for new investors is the high demand is compressing cap rates, creating a higher barrier to entry ultimately reducing potential returns. However, if you posses the means to overcome this obstacle you can be assured that you will experience solid returns as well as a respectable level of capital appreciation.

@Ben Gabin

Excellent!!

@Kyle Longacre

1031?

Depends on his investment criteria. What are they?

@Christine Krizenesky

I can get you market reports. PM me.

@Brian Keeler

Whats your overall investment strategy look like? That will dictate your refi terms.

@Ben Gabin

Ouch...

Do you have anything to hold the deal together?

Typically hard lenders will charge a 10%-20% DP not to mention points.

How much do you need? And what is your assignment fee for the deal? How much time do you have?

@Ben Gabin

Are you trying to leverage a wholesale?

@Matthew Wright

It all depends on which method he used to appraise the property. I find it a bit unusual that he didnt consider income capitialization in his approach. Are you sure he was a commercial appraiser? Not sure how you purchased it, but when you refi the income will be considered. It should've been considered in the purchase if you took out any debt. Income on a commercial property plays a very crucial role in valuation. Were his numbers in line with your purchase price? Is the property occupied? Do you know the purchase cap rate? Are there any comps in the area? Post some more detail about the property, please.

@Matt Ward

I know the question wasnt really directed at me, however I will offer up my 2 cents.

There are a multitude of factors that can skew the IRR of a project. Personally, in my experience, it is often times the overly optimistic projection of asset performance. We have a tendency to overestimate our ability to improve an assets performance based off a number of bias'. But mostly its our inability to completely emotionally detach from our investments. No one wants their investments to fail and all want to see optimal performance. This is why it is best to have a thrid, disinterested party calculating projections for your investments.

Another reason I have seen is underestimation of capital expenditures and rehab costs as well as maintenance costs. This could be due to optimism again or simply a failure to properly inspect the asset.

Assuming the market will continue to grow linearly. Failure to include mild corrections throughout the holding period, failure to properly calculate capital expenditures, not only the amount as stated above but WHEN they will be deployed.

Another big one that can affect IRR is the failure to account for turnovers efficiently. Not every tenant moves in in January and out in December. It is imperative that you review lease data and determine expirations as well as calculating the probability of renewals. Are the leases staggered or are they accumulated? Having 12 units turnover in a 3 month window without properly preparing can have a major residual effect on your bottom line. Overall there are any number of factors that can affect IRR, as you do your analysis you can watch it change as you adjust relative inputs.

Analysis is a dynamic projection and when properly done requires time and more than a BP calculator (no offense BP). Your analysis is the entire framework for the investment, like a mission statement for the asset. It has to be constantly performed and readjusted. Depending on the size of the asset that I am invested, I rerun the analysis in its entirety biannually or annually.

Never one and done your analysis its much more than a decision making tool for your investment, its a vital asset for properly managing and diagnosising your properties throughout the investment horizon.

I'm sure @Brian Burke will second that.

@Dean Hunter

Nice, I'm happy for you.

The offer was more of a courtesy rather than a solicitation.

Per your request, as a passive investor in six MF properties totaling 168 units my aggregate pref returns over the entire portfolio is roughly 12% (at least according to my FO advisor). This however is a very rough estimate as each property consists of different OA's hence varying waterfalls. Three waterfalls consist of cumulative prefs, one of which has assigned an annually compounding accumulation at a varied rate differing from the pref, the other three are non-cumulative. Two structures have "look backs", one has a "catch up" all are 3 tier promotes...and yada yada. The point is if you choose to structure your deal in which first line hurdles are 20% go right ahead, you'll have some very satisfied investors. 

Just make sure your not writing a check from your own account after disposition.

I'm sure with your impressive bio you'll figure it out.