All Forum Posts by: Duke Giordano

@Taylor L. Thank you Taylor for your time and insight.  Yea, I figured some of these are location dependent.  Trying to get some ball park estimates that seem in a reasonable range, but may be tough to do in forming rules.

Hello All,

I was curious if there are target metrics specifically in respect to the following from the [perspective of Risk/Target profile of deal:

1. Purchase price per unit: is there a target range for this price per unit based on deal cost?  How much of this changes based on asset class (A,B,C) vs Deal location or are some of these numbers universal?

2. Average Rent Per Sq Feet: When looking at a multifamily property is there an average Rent per Sq Ft?  Obviously this would be. number derived from Average Sq feet of units to average rent.  I am guessing this is somewhat market dependant but not sure if there is a rule of thumb?

3. Average Rent per unit compared with average income in the area: is there a specific range/metric that is targeted or does this not really come into play?

4. Renovation/Cap Ex cost in relation to total Purchase price: Is there a target that is looked at in relation to this percentage?

5. Bedroom Diversity/Breakdown: When looking at a Multi-Family Deal is there a target Bedroom Diversity: for example, how many of the total units are 1 bedrooms, 2 Beds, 3 Beds etc?  Does this number effect risk profile/target of deal?

Thanks in advance for your thoughts/input,

Duke

To those who received a K1 does this give off interest income (box 5) or passive income (Box 1) on K1?

You really have to analyze the numbers. Whenever I have looked at development or re-development deals the numbers at least today are not worth the risk. When you are looking at cash on cash, IRR, Equity multiple etc. there was not a big enough delta to warrant the risk and lack of cash flow in my opinion. If I can get a 14-16 IRR, 8-10% cash on cash and 1.8-2X equity multiple in. a stabilized deal, then need to compare those numbers with a ground up.

In a ground up, if I get no cash flow for 3+ years, no depreciation until it is constructed, and on top of that maybe a 17-20 IRR, and a 2.2 equity multiple to me that delta is just not worth it. Maybe in different economic times it makes sense, but right now... Not so much, at least to me.

Hey All,

I was considering developing a type of service/tool that is specifically geared toward a certain aspect of Real Estate Investing.  If I were to want to maintain my intellectual property on this, what type of legal representation/counsel should I search out before doing so.  I do want to share with others to get their opinions, but I am hesitant due to the possibly of intellectual property breach or someone using the idea, but not sure how to best go about protecting myself before sharing.  I guess it would be someone who is familiier with intellectual property in relation to real estate.

If you have specifics reccs. on legal representation either people or attorney type that would be much appreciated.

Thanks in advance.

@Christopher Nemlich, @Rick Martin

Hey Chris,

I will let Rick answer, but in my experience when sponsors used raised capitol to pay LP's it is not commonly divulged.  You can either try to add up the equity raised with the loan and subtract cost of property to see what the delta is.  The other option is just ask the sponsor, but some may not be so forthright on this.  Others may know another way to see if this tactic is taking place.

Thanks for the thoughtful input all @Arn Cenedella, @Danny Randazzo, @Rick Martin, much appreciated.  Rick, as a FU so total reserves should be roughly in the range of $1500 per unit (operating reserves+replacement reserves)?

As an LP mostly interested in upside, I am really not a big fan of the more popular duel LP (Class A/Preferred Equity and Class B) structure.  It is really like a second tier of debt, or extra debt if a deal is 75/25 LTC with 15% preferred equity its really like a 90/10 LTC from perspective of class B investor.  Thus, kicking cashflow down road for cash B, and increasing risk.  Wish more syndications would stick with traditional model.

Hey All,

Wanted to touch base on a few topics that are not typically discussed in relation to components of a RE syndication deal and how this impacts things from the standpoint of the LP in relation to such factors as risk profile, return etc.  I am trying to get a bit granular and would appreciate any input from experienced LP's and syndicators.  For the most part this is in relation to Multi-family, but i guess can be applied to other asset classes as well.  Thanks in advance for your time and insights.

1. Early LP Distributions: There are some syndicators who early on in a deal let the cash flow speak for itself in that cash flow is typically less early on in a deal, and then ramps up as business plan is implemented, and finally with Refi/Sale.  However, there are also other syndicators who raise extra capitol to pay investors in the beginning of the deal (in essence paying your own money back) and has the effect of more steady cash flow early on.  My questions is how does either of these structures impact the deal itself in relation to return/risk metrics if at all, and would you prefer one model vs the other?

2. Renovations/Cap Ex Budget: There are some sponsors who fund renovations with initial money raised as capitol/equity, and other sponsors who finance or take a bridge loan (less common Post-COVID) to fund renovations.  How does each of these models of funding renovations impact risk/return from the perspective of the LP and which one is there a preferred method to do so?

3. Post-COVID Reserves:  I am curious what sort of reserves an LP should be looking for in a syndication the Post-COVID era?  There are some reserves that may be required for agency (Fannie/Freddie) debt, and others the sponsor chooses to on their own raise to decrease risk for unforeseen circumstances.  I have see a few different metrics used for calculation of reserves such as dollar per door (such as maybe $500-1000 per unit/per year), versus setting aside 9-12 months of OpEx (Expenses and Debt), or a certain percentage of purchase price such as (1-5%).  I am curious what is the preferred structure of reserves to see in a syndication as an LP in this current climate from a syndicator?

4. Free Cash: When evaluating a deal risk profile do you look for a sponsor to have set aside "free cash", and what is the typical funding source of such (Capital/Equity raise vs Finance).  How does this free cash allocation relate to the above reserve questions one looks for?  Is it included or separate from the reserves calculation?

Thanks all, look forward to discussion.

Duke

Thanks everyone, truly appreciate the input and suggestions.

Thanks Taylor, great info.  I guess it doesn't break it down by asset classes within MF such as Class A,B,C?  I do see Class A assumptions.