All Forum Posts by: Dan Hennessy

I purchased multi-families in Worcester in 2008 (Vernon Hills) and 2017 (Belmont St). Having a solid property manager has been the key to these buy and holds as I have a demanding 9-5 and live ~1 hour away. This year has seen an uptick in vacancies that is impacting my cash flow, yet price appreciation allowed me to pull out equity through an ELOC to scale to other investments.

Investment Info:

Office Space buy & hold investment.

Purchase price: $1
Cash invested: $400,000

In process Medical Office single-tenant deal. Fresenius Medical Center is located at xxx. This building was constructed in 2005 and contains 7,000 square feet of total rentable building area. The tenant, Fresenius Medical Care Roanoke Valley Dialysis has 8.7 years on their modified NN lease. The lease features minimal landlord responsibility, two percent annual increases starting after the 5th year. The lease is corporately-guaranteed by Fresenius

What made you interested in investing in this type of deal?

Strong demographic trends along with migration of healthcare delivery to off-campus facilities is no secret. My analysis of the geographic area suggested a high medical need for kidney dialysis services that this facility serves for a 25 mile radius. The underlying operating performance of the facility confirmed my analysis. The nearly 9 year lease and 5 options to extend the lease where attractive as long-term buy and hold with strong cash flow

How did you find this deal and how did you negotiate it?

I used listing services to underwrite 3-4 deals per month, and then engaged several brokers to interview to represent me. I identified a broker who specializes in medical office buildings and, among dozens of potential investments, we landed on this deal.

How did you finance this deal?

30 LTV. 30%Cash, 70% loan

Investment Info:

Large multi-family (5+ units) buy & hold investment in Jacksonville.

Purchase price: $12,000,000
Cash invested: $25,000

I am an LP on this multi-family value-add deal

What made you interested in investing in this type of deal?

Investing as an LP is a great way to earn passive income, all the while allowing me to work with an experienced GP who has a strong track record

Investment Info:

Other note investment investment.

Purchase price: $120,000
Cash invested: $120,000

Note fund with 5 year hold and 10% return

Investment Info:

Large multi-family (5+ units) buy & hold investment in Stone Mountain.

Purchase price: $40,350,000
Cash invested: $100,000

I'm an LP on this deal, Ashland Lakeview Apartment Homes plus Mountain Lake Apartment Homes. 539 Total Units, Atlanta Georgia MSA, purchase price $40,350,000. The strategy that attracted me to the deal was to add value with professional management; the GP brings an in-house property management group with scale in the area.
Other strategies:• Enhance curb appeal and desirability
• Add substantial value to the property by upgrading unit interiors and increasing rents to market rate

What made you interested in investing in this type of deal?

By joining a deal as an LP, I was able to learn the end-to-end deal strategy behind a multifamily value-add deal. Through their investor webinar to 1 on 1 interactions, I was able to discuss the strategy, financials, risks, and exit plan for the deal. At the same time, the targetted returns were attractive with an 8% preferred return and attractive target IRR

How did you finance this deal?

Cash

Investment Info:

Large multi-family (5+ units) buy & hold investment in Stone Mountain.

Purchase price: $40,350,000
Cash invested: $100,000

I'm an LP on this deal, Ashland Lakeview Apartment Homes plus Mountain Lake Apartment Homes. 539 Total Units, Atlanta Georgia MSA, purchase price $40,350,000. The strategy that attracted me to the deal was to add value with professional management; the GP brings an in-house property management group with scale in the area.
Other strategies:
• Enhance curb appeal and desirability by implementing common area improvements and upgrading amenities
• Add substantial value to the property by upgrading unit interiors and increasing rents to market rate
• Improve the resident profile and stabilize occupancy and collections
• Increase income, hold for cash flow for several years and sell as renovated, stabilized asset when the best exit timing is achieved

What made you interested in investing in this type of deal?

By joining a deal as an LP, I was able to learn the end-to-end deal strategy behind a multifamily value-add deal. Through their investor webinar to 1 on 1 interactions, I was able to discuss the strategy, financials, risks, and exit plan for the deal. At the same time, the targetted returns were attractive with an 8% preferred return and attractive target IRR

How did you finance this deal?

Cash

Alexander,

Given the complexity and technical acumen required for commercial RE development, you will need to learn from others. 

You have the the baseline interest in real estate along with experience in residential RE. Your learning should be a continuous process throughout your life/career. Learn through multiple channels, formal and infomral. Read, network, do... rinse and repeat! 

A great read is the "4 disciplines of execution"....put together a plan where you have an achievable objectives of commercial RE development. Develop 2-3 key timebound goals, identify both lead and lag measures to get you there, and then implement accountability.

Another great way I've found to learn is to participate as an LP on syndications. By communicating with general partners, and joining the investor calls, you can ask questions, review the strategy, financials etc. Its a fantastic way to learn. If you are not an accredited investor, you can perhaps identify a commercial development crowdfunding deal through crowdstreet or otehr platforms. Look for projects that interest you, assess their materials, and then consider putting some of your own skin in the game as passive investor. Best wishes!

I have a special connection with MGH, having had my first research and healthcare role in the mid-1990's, to having multiple family members receive world-class medicine for serious illnesses. It is fascinating to see MGH, founded in 1811, unveil it's 1,000,000 Sq Ft expansion plan that will expand inpatient and specialty care capacity for decades to come. It will be interesting to see not only on-campus transformation, but also how off-campus medical office space evolves in the West End, Beacon Hill and Government Center.

https://www.bizjournals.com/boston/news/2019/05/13/first-look-mgh-plans-1-million-square-foot.html?ana=e_bost_bn_breakingnews&j=&mkt_tok=eyJpIjoiTkdVNU1HUmhNemMzWldZMiIsInQiOiJYNWJPXC83Y0dDSUpMbHpYV1ZQblwvMkhEbFRuOEdxUGxXVkM0eHo0WndvcUtrbzY3cFlCT3hFWkROZ3R6clh3WUVKSDN5SlBUTEVFSHh2Q1I3TEd2OHZneEFJNWwwUmlVWXJnT2kxSTJONmhFd3BtVEtoMTlQb0x3bTF2a1wvMWNiUFhrNHNscXFnNkhsakRmTk5aTFpCY1E9PSJ9

There are no doubt a wide range of opinions that match the diversity of goals, markets, and personalities.

I believe in the Warren Buffett/ Benjamin philosophy of buying assets with a long-time horizon when they are priced at a discount to intrinsic value to provide a “Margin of Safety.” I chose to invest in Central Massachusetts when I started MF investing 11 years ago as I was priced out of Eastern Mass. While I did not see the Worcester market as a huge appreciation opportunity and I was interested in generating cash flow, I believed that the “Mr Market” would provide opportunities for “catching up” in the long term.

I acquired my first 3-family property the same day that Lehman collapsed, but was secure in my belief that, at less than 50k/door and needing ~30k in rehab costs, I could get the property cash flowing in 6 months, even with having a property manager in place. My income goal was to achieve 5-8% cash on cash returns, while the low purchase price on a moderately distressed asset was my Margin of Safety.

As it turned out, it took me 3 years to achieve positive cash flow as I had to play "catch up" as a consequence of deferred maintenance on the property. I was, on average, $250 cash flow negative per month for 36 months. Since then, I've "caught up" with COC returns when averaged over long term and have achieved desired targets. In addition, increase equity from debt reduction have roughly matched COC returns.

These returns, however, have been dwarfed by the price appreciation, thanks to the Margin of Safety Principle. Median price appreciation for 3 families in Worcester have increased 58% from 2013-2018. and my property appreciated ~230% over 11 years. At an initial ~65% LTV, the levered returns from price appreciation over a long time horizon far outperformed income and amortization of the loan.

The bottom line is that MF real estate allows you to benefit from multiple return “streams,”, as per the "IDEAL" principle. Smart leverage helps, as does a long term horizon on properties bought at a discount to intrinsic value.

Investment Info:

Small multi-family (2-4 units) buy & hold investment in Worcester.

Purchase price: $147,900
Cash invested: $38,000

3900 sq ft built in 1895. Cash flows on average (4500/yr [with volatility])...recently appraised at $330,000 which I leverage to pull equity out through our refinance to make commercial real estate acquisitions

What made you interested in investing in this type of deal?

I was at the beginning of my RE investing oath and had spent 2 years reading and reading. With my wonderful market timing ability, I decided to the the trigger on the DAY OF Lehman collapse. My wife thought i was crazy and I thought I made a mistake!

How did you find this deal and how did you negotiate it?

I found a broker

How did you finance this deal?

Personal savings to put down 25% and pay for massive deferred maintenance

How did you add value to the deal?

Patience and finding a good, upstart property manager where I became his first client. He recently sold his business one year ago, and then the acquiring business was acquired two weeks ago!

What was the outcome?

Still holding. Exit strategy= either 1031 or leave to my daughters (hoping that’s not until 2074 when I each 100)

Lessons learned? Challenges?

Pull the trigger man!