All Forum Posts by: Gordon Way

I have had the same property managers for four years. We are truly partners in this industry. I informed them several month's in advance that I was going to sell. I'm using this as a 1031; it was planned out and discussed with all impacted parties well in advance. The PM renewed two of the four leases at higher rates. They knew I wanted them to do this to help pro forma NOI/rent roll numbers. They got their lease renewal fee for doing so + the monthly management fee.

I did read the contract and we actually just negotiated a new MA with different terms. I have always interpreted the two sections above as being pertaining to two different situations. You sell and they can get an event of sale fee or you terminate and they can get a termination fee, or both if both are selected. They are reading it as if I sell, I then terminate their management on those units so they get the termination fee. They get no event of sale fee since no selections were made in that section. I have only ever acquired rental real estate (have done some flips but those never involved a PM at sale). Hence, my post to see if people read the sections like me, have had it enforced on them, or any knowledge of the matter. 

They did not, nor did I, terminate the whole MA. They have charged me the fee pertaining to the four units I mention in my first post. 

Hey BP-

I just sold a quadplex and my PM is considering the sale as a termination of the agreement for that property. I have 25+ units with them so this is a master agreement with lots of properties on it. I have added a picture of two section of the MA. They didn't have any selections checked for section H Fees in the Event of a Sale. They do however state that if I was to terminate the agreement (part or whole) that I owe the greater of $500 or their management fee for the remainder month's of in place tenants' leases. 

I'm interested how other REI view or have experienced this dilemma of words. Does the sale constitute a termination? Seems like there is a whole section of the MA that deals with sales and they opted out of any of them. Thanks and happy investing!

@Mack Benson 

The things you learn when trying something new. The good news is we actually have great terms on the current note and are posing to sell in the next 12 months. I was looking into options to refinance in case the multifamily market softens in the area and we decided to hold for longer. Thanks for your explanation.

@Mack Benson

Thanks for the reply. The investor % has not changed since the company was created. My understanding from my lawyers and accountants was that difference between an LP and LLC (with partners) is that in an LP, the limited partners aren't required to be on a note or title, hence limiting their exposure to liability. With that lower risk they trade off most of the decision making to the GP. Now, obviously every structure can and is different. These were the general broad strokes as I understood them. If they do have to be on the note and subsequently the title what is the benefit from their (limited partners) stance? Like I said in the original post, for the acquisition this was no problem. They had to give their SSN for regulatory bodies to see where the cash came from but were not part of underwriting or on the note or title. I'm wondering if this a shift due to covid and current debt markets or a new requirement I should factor in going forward indefinitely.

@Ara Jo I just listed my portfolio in San Antonio. It is spread out around the city with strong history of cash flow. Let me know if you’d be interested. I am looking to 1031 and stay in the city. I’m very please with my experience in this MSA.

Hi BP-

I am the general partner as well as a minority limited partner in company I created to buy an asset. We bought 18 units in Lubbock, TX in 2018. The property is doing great and we are looking to pull some equity out through a refinance. For the original acquisition, I was able to solely guarantee the loan and keep my LPs off title and the note (as it should be). However, I have been shopping around my normal lending partners and they are all stating that due to the market conditions that they require any LP with 20%+ equity in the company to guarantee the loan. I have only increased my net worth and income since 2018, so this has nothing to do with my ability to guarantee. This is the exact opposite of what I was told and in-turn told my investors. They want no liability besides their original investment. 

My question is: Are other REIs experiencing this same shift in underwriting? Does anyone know a lender that still underwrites the same way as when I acquired the asset? Any feedback on experiences, workarounds or something that I'm missing is greatly appreciated. Stay safe and keep building those empires! 

@Erik W. Thanks for the response. I have looked all over the San Antonio market for a lender that will do non-recourse and the only ones seem to be brokers for agency loans. We are moving from one contract (HUD Mod) to another (local housing authority voucher program) and the agencies won't look at it until it's stabilized under the new contract. If you know anyone that would do non-recourse out the gate, I would be much appreciated to get into contact with them!

@Greg Dickerson Thanks for your reply. I'm in the process of doing that now. I wanted to blast my finding out to the BP world and make sure I'm not missing something here. 

I have a 58-unit building under contract @ $2.5M. The bank I was planning on working with was offering 5yr fixed @ 5.0%, 25yr am and 75% LTV. First two years are interest only as we move off of a HUD contract and into the local housing authority voucher program (the tenant base is low-income seniors). Everything was looking good, it's a recourse loan. Then they said I need to have 30% of the loan amount (nearly $600K) in liquidity that is not part of the deal from the guarantor(s). This is an LP, I'm the sole GP and the funds must be in my or someone who guarantees the loan accounts. Originally they said it could be in a retirement account if the person is at or above retirement age. I got my parents onboard and they filled out the financial statement and we sent it in. Their retirement is about $1M, so we thought this obstacle was gone. Now we come to find out that retirement accounts, no matter the person's age, can't be counted towards this liquidity requirement.

My question is to you all, have you run into this type of underwriting? The bank is rather conservative but we have worked with them before. I would have expected a liquidity requirement based on a couple (3-6) month's PI payments that could have been held in the LP funds. Any advice or stories for your experience in this predicament is much appreciate!

Hello BPers-

I have been an active investor in the San Antonio market for 5+ years with great success in the multifamily and SFR verticals. I am under contract for a 58-unit complex that is near downtown on the West side. Here are some high-level details for the investment:

· Purchase price: $2.5M

· Capital call: $800k

· Minimum Investment: $50K

· Capital pledged to date: $400K

· Investment cycle is 3-5 years with a forecasted net ROI of 94%, IRR 19%

I'm offering a 1% referral commission to anyone that gets me in contact with an investor that signs on. If you or anyone you know are interested please don't hesitate to contact me. 

Gordon Way
Principal for Prospect Hill Holdings, Ltd.
[email protected]