All Forum Posts by: Duke Giordano

Ouch, cannot say I’m surprised 

Hello All,

For many of us we are familier with certain metrics used to evaluate deals in asset classes such as Multi-Family, Self Storage, Mobile Home etc. when vetting a deal and a sponsor.  However, if one were considering an ATM investment I have a few questions if you would so oblige.

1. Since most of these deals are funds, how would one vet the sponsor in this ATM space?

2. When looking at an ATM deal what are some of the key parameters/metrics that one should look at when evaluating these deals? What are expected numbers for these things? Such as Preferred return, IRR, Equity Multiple?

3. What are typical fee structures for these deals that are reasonable?

4. I have learned that these assets depreciation fully over 7 years, what is a typical depreciation schedule and percentage of investment that would be expected?

5. What is an expected or typical hold time and how does this factor into the vetting process for ATM deals specifically?

Thanks in advance, just looking for some details on how to vet these deals.

@Brian Burke

Brian,

Thank as always for your reply, much appreciated.

Hey Guys,

I am trying to get an idea of whether evaluating the delta between interest rate and initial cap rate is a reasonable metric to evaluate when analyzing a syndication deal? For example, if the cap rate is 5.5 and interest rate on loan is 3%, the delta is 2.5. If so what are some target Delta's in different asset classes such as Multi-Family, Self Storage, Mobile home (I have heard a target Delta of 3 is desired in Mobile home class). Does this vary by market, or is this parameter independant of market geography? Id be curious to hear what some target metrics others look for in this delta when analyzing a deal. It goes without saying that this delta allows the deal to have a chance at profitability, so thats why it appears it should provide a value, at least on face value. In addition, the loan terms LTV/LTC I realize effect overall profitability in relation to this delta, but I am trying to keep it simple.

Thanks in advance for your time and answers.

@Brian Burke

Wow, thats exactly what I was looking for Brian, much appreciated as always for your time and effort.  I will start looking into some of that sources/data, once again thanks so much as always.

@Steve Morris

Thank very much for your thoughtful reply. It seems like what you're saying is one of the most usable parameters that one can see if a deal seems fair/ legitimate is to compare the dollar per square foot they are projecting versus dollar per square foot average for the area. If this is the case do you have a source (preferably a free one if it exists) where you can find the Average dollar per square foot in a particular area or ZIP Code.

@Shannon Robnett

Agree 100% that the sponsor, experience track record is no doubt the MOST important parameter.  That’s why I tried to make a disclaimer in the first paragraph indicating “not including” sponsor experience, return, fees etc.

Having said that, and taking the sponsor into consideration I am really looking at the most important quantitative parameters of the Income/Expenses/Debt etc when evaluating a sponsors deal as an LP.  Once you have established you like the sponsor, and their experience is adequate.

Hello All,

In evaluating a particular market when looking at multi-family syndication, what in your opinion are some of the most important market parameters (some I outlined below)and where can one find this info, preferably free (also outlined below).  For example some site such as rentometer are pay only.  What sites do you all use to best/easiest find this information?  Such parameters would be:

1. Population Growth: US Census, Data USA, city-data.com

2. Job Growth: deptofnumbers.com

3. Crime Rate: city-data.com (hard to find), crime reports, justicemap.com, neighborhoodscout (pay)

4. Median Household Income to Avg Rent Ratio: city-data.com

5. Landlord Friendly states: Where can one find which states are landlord friendly

6. Job Diversity: not sure where to find this type of info

7. School District: can be found on Real estate sites such as zillow, realtor.com

8. Rent growth in a particular Zip Code: Rentometer (pay), Aprtmentlist.com, rentonomics, rent cafe, rent jungle

Thanks in advance for your input

Having come to the conclusion that a number of these variable are market specific, when one looks at a operators pitch deck/executive summary what can you look at (numbers wise) from Income/Expense statements to cross check to see if deal (single asset syndication) is reasonable specifically related the quantitative apartment specific information in relation to the deal?  (Not including parameters such as Sponsor experience, Fees, return, waterfall etc).

For example, a few Input numbers we are typically given in PPM/Pitch Deck and can use include the following:

INCOME:

1. Gross Rent

2. Effective Gross Income

3. Other Income

EXPENSE:

1. Vacancy (reasonable 6-10%) 

2. Concessions (reasonable 1-1.25%)

3. Loss to Lease (reasonable 1-3%)

4. Bad Debt  (reasonable 1-1.25%)

5. Other general expenses (Marketing, Admin, Payroll, 

6. Replacement Reserves

7. Total Operating Expenses: (Taxes, Payroll [$1000-1400/Unit/Yr], repairs and maintenance, Admin [$200-300/unit/Yr], marketing[$75-200/unit/Yr], utilities, Prop mgmt, Insurance).

8. Debt Service: Principle plus interest

9. Proforma Net Operating Income: (Effective Gross Income - Total operating Expenses).

And Finally, these numbers then allow the calculation of the following:

1. Default Ratio (<85%)

2. Debt Service Coverage Ratio (>1.25) - this is often given in pitch deck but can check calculation.

3. Yield on Cost - Is it 1.5-2.5% higher than exit cap (proforma NOI/[Purchase Price+Cap Ex])

4. Operating Expenses as a percentage of gross rent

5. Replacement Reserves $/per Unit

6. Repairs and Maintenance $/Per Unit

7. Economic Vacancy (Vacancy+LTL+concession+ Bad debt) [Reasonable 8-13%]

Before anyone says this evaluation is too detailed, I realize that.  My questions is which of these specific parameters are most salient/important and worthwhile to try to calculate during LP evaluation of a pitch deck to see if deal assumptions/underwriting are reasonable and meet preset criteria? What are some target values for these above parameters that you all would want to see?  I have added some target parameters I look for, but would appreciate peoples opinions on these targets, and their value/importance in deal assessment.  Once again, this is an exercise that I am trying to wean down worthwhile/important parameters to use not necessarily to use all these on every deal.

@Brian Burke, @Michael Orlando

Thank you both very much for your thoughtful reply.  So I guess what I am gathering is most of the questions I proposed is really Market dependent and hard to establish a rough criteria to use when evaluating these parameters as a passive investor.  I am trying to look at some metrics in relation to the property itself that can be used to as a fair approximation to reasonable when vetting a deal.  Thanks once again for everyone’s time and input.