All Forum Posts by: Chris Grenzig

@Duke Giordano yea I wouldn’t be alright with that if I was an investor, that is part of doing the fund structure. Both the GP and LP are protecting their downside through diversification of multiple assets.

@Duke Giordano we're having serious discussions about possibly moving into that model, but for many of the reasons you and others have stated we've held off.

One thing I will mention is a lot of investors don't have funds just rolling in all the time and may not want to sit on money to invest with someone they like, so the rolling fund could allow them to invest today.

I also think a fund with less targeted assets would be more attractive for investors than 8-15 properties deep or something, especially in commercial or multifamily.

Most of our investors are repeat and have invested in probably at least 50% of our deals if not closer to 75%, so they do get some of the benefits of diversification through the multiple deals, but thats over a few years so if they had $200,000 at one point in time, it could take them a few years to place rather than at once, and allowing newer investors to come in later on or in later funds.

Obviously this could lead to time sensitivity of finding deals, but the hope is that the sponsor has several solid deals lined up, or consistent deal flow.

I think at the end of the day it really depends on what you want to get out of it, and which suits you better.

@Johnson Joseph if you haven't connected with @Antoine Martel you should, owns in the area, but from LA and one of the good guys.

@Jack Yen NC doesn't allow it, you're correct. Look into installing meters, or figure out why the cost is so high (leak, pool leak, tenants leaving water on, install low flow items, etc.) Talk to the current owner or broker as they'll have more information and will know the best route or if there even is a way that makes sense.

@Steve Veen almost all our deals at 506b like @Brian Burke said and for the same reasons. Just wanted to chime in and back up his statement just as another point of reference.

@George Liu hey fair enough, everyones got their own thoughts on debt, thats why some people by things in all cash. I definitely agree with 15 vs 30 year loan, doesn't make sense to em either. 

@George Liu more debt is for sure going to lever your returns more in both positive and negative directions. So the more debt you get, the higher your returns would be assuming everything goes well. As much as we like to think everything is going to go right, doesn't mean it will, so we always make sure to look at the potential downside as well and see when it is that income after expenses and mortgage would breakeven or make no money (what percentage of forecasted income). This ties into the DSCR which is another way to look at the breakeven just shows how many times with your projected or in place financials can you afford to pay the mortgage (typical stable loans are 1.25x-1.30x minimums).

You are not wrong in saying the additional leverage will generate higher returns in theory, but it also means things will be worse if things go wrong. It's more mortgager payments you would have to cover, more borrowed debt you'd have to make up, higher price you'd have to sell for to cover the mortgage, higher valuation you'd have to get to cover the refinance etc. 

In my firm opinion you have to way the downside "returns" equally or greater to the upside returns. We will frequently will take lowered levered loans despite having the ability to get more because of this.

@George Liu 80% with a higher rate? I would be careful you're not over-leveraging the deal, I would look at breakeven occupancy. Most loans are priced out on debt service coverage ratio, so I would ask the broker why you can't get higher and see what he says. If he says the DSCR, I would look at the DSCR for the bank loan and make sure you're comfortable that it's enough to cover, stress test it and make sure your downsides are covered. I would also then look what your breakeven occupancy is for the deal with the two loans and see if the risk is worth the returns. Just my 2 cents...

@George Liu okay I don't think that really changes anything for me, if prime is 5.25 plus an extra quarter thats 5.5 ands you're getting quoted 4.3-4.5 with a broker. You're saving over 5 points for the next 5 years and it'll cost you 1.5 points extra up front. At the end of the day it's just what you're willing to accept.

A lot will depend on the leverage they're offering as well, and any interest only periods, the amortization, etc.

@George Liu his he quoting a floating rate or fixed a prime plus a quarter? Isn't prime now like 5.25% so thats a 1% difference in rate which would make up for the 1% extra in closing cost just inside the first year alone?