All Forum Posts by: Account Closed

Serge S. Brian Burke Steve Olafson We assumed a Fannie loan in late 2012 on a $17 million deal in St Louis. Seller was in distress and judge ordered a sale. We were fortunate that the loan balance came in right about 80% of our purchase price. We got it for about $5 million less than they paid in 2008. Rate was high for the time (5.69%), but numbers still made sense with that loan. Deal was 208 units in A+ location. Main issue was loan comes due in 2017, which was our only hesitation. We were fortunate to be able to create a lot of value due to our purchase price (and got lucky that the market took off).

Another, and probably one of the most important, is cost of capital. For example, our company buys large multifamily properties, usually 200+ units per transaction. These deals usually cost between $15-20 million. We need to raise or have previously raised the equity to do these deals. The marketplace is paying equity investors 6-7% preferred returns right now. That means for us to raise the $4-5 million in equity we need to do each deal, we have to find deals that make MORE than a 7% return for us to be able to make money, since we are paying the equity investors 7%. If we buy a deal with a 5% return, we lose money. Alternatively, if we put 100% of the equity in each deal ourselves and didn't need/have investors, we could settle for whatever return we wanted. But most people don't have that kind of cash laying around. If you are buying a single family house and using your own money, you can take whatever return works for you. Also, you need to compare the returns of the investment to alternatives. Today, there's not many other safe ways to get 7%, but there used to be a time when you could put that cash in savings or a CD and earn 3-4%. So why would someone take all the risk of buying a multifamily deal at 5% when they could earn a risk free 4% in a CD?

So did anyone send Grant a video?  

@Charles Smith what value can you bring to a mentor?  Starting thinking about how you can help one of these guys. How can you make their life easier?

Using myself as an example, if you found a good deal in Cincy that I didn't already know about and sent it to me, I'd be happy to let you follow the process and gain education.  Or, you mention you can do analysis.  Maybe there is a multifamily investor in Cincy who you could run numbers for?  

@Charles Smith It takes time, education and money.  Or some mix of the three.

I've been working in this arena for the past 10 years.  6 years on the development side and the last 4 focusing 100% of my time on large multifamily acquisitions.  

If I had family money or a really, really rich uncle I could have gotten started on my own sooner, but I'm now just at a place where I have enough of a track record, equity relationships, lender relationships and broker relationships to start going out on my own, putting together large multifamily deals as the sponsor. 

It's a little unfortunate that it all came together towards the top of the cycle, but that's something for me to deal with and figure out how to make work.

This is all a long way of saying, listen to all the other posters here who say get education and start small.

Great podcast on sales.  Wasn't as thrilled on the real estate comments.

Normally, I can count on our hosts (especially @Joshua Dorkin  ) to call out, or at least question a guest, who makes comments like,

"Multifamily is invincible no matter the market" 

Grant owns $350 million of real estate, which is impressive.  I do not own near that so I tip my hat to him.  I have, however, and continue to be a deal guy at 2 investments funds that own far more real estate than Grant and let me tell you, multifamily is not a fool-proof investment and if you do not know what you are doing.

I enjoyed the podcast and not trying to be a naysayer at all, just want to make sure that newbies are aware that even multifamily goes down, cashflow dries up, and bad things can happen.  No matter how skilled, experienced or talented you are.  It's been hard to make a mistake in multifamily the past several years, but remember, real estate is an industry of cycles and multifamily too will have hard times at some point in the future.

Brian Burke I should've put a little more color on my comment. I'm running to the airport trying to catch another flight and I just wanted to put that out there to the OP. At NMHC, Houston was a market that was talked about repeatedly as being a boom and bust market and signs are pointing the wrong way all of a sudden, as you mentioned. I'm not smart enough to figure that out, I'm basically plagiarizing the top economists that spoke at the various events. Consensus was the market has performed very well the past few years, but that the big national players are pressing pause on new acquisitions in Houston for the time being. That said, I imagine many are still buying. I don't have first hand knowledge of that market, so definitely take what I mentioned with a grain of salt. But yeah, definitely a great time to be a seller there. Just not sure I'd be a buyer right now, unless my deal can withstand a few tougher years.

Houston is very dicey right now in multifamily. A lot of jobs (~75%) are oil and gas related in that market and are at risk. Developers are building a lot right now and a lot have recently pulled the plug on deals in Houston. Be very, very careful in that market right now. Underwrite negative rent growth years 1-3.

@Seth Mosley sorry for the delayed response.  You are correct.  100 basis points (bps) equals 1%.

1 bp = .01%

Since it's just for fun...

My daily car is a 2008 Prius.  I get laughed at by all the other guys at my job.  But it's very reliable, only has 90,000 miles on it and has been paid off for years.  Will likely be driving it for many years to come.

As an anniversary/baby gift for my wife we bought a 2011 Acura RDX Turbo w/tech package a couple of years ago.   Good for the MN snow and good for driving kids around.  Paid cash, bought from a dealer who buys at auctions.  Got the car several K under market.