All Forum Posts by: James Storey

Unfortunately, it sounds like you don't have much of a chance to get your EMD back. The zoning requirement is something you should have determined before going into contract on the auction. Zoning issues don't constitute as a defect, so it doesn't have to be disclosed at least in the auctions I have been a part of.

This one is somewhat tough due to the current partnership structure. If the 40% partner want to be bought out, then refinancing would definetly have enough cash out of the refinance to pay him off at a $1.5M valuation. The property is still financially viable if you truly believe you can get $12/sf NNN which puts the refinance value at an 8% CAP (going in cap rate). Assuming your new mortgage is at 75% LTV, your new loan constant would be at around 5.86% wich is about a 214 basis point spread on your going in CAP. Any left over capital after paying out the 40% partner should be put back into the building to cover TI and leasing commissions.

On the other hand, given the complexity of the partnership, it may just be easier to sell the asset. It's hard for me to give my full opinion as I don't know much about the asset and where it is located so I am going at this a bit blind.

James Storey, CCIM

So most investors offer a standard yield to limited partners. Typically it is between 7%-9% on the limited equity investment with an additional equity kicker to get an IRR of close to at least 12%-15% when the limited partner is bought out from a refinance or a sale of the property. Or it is structured where the limited partners obtains 49% of the equity once the property is sold. These are just some ideas that I have seen be done on deals by my clients.

James Storey, CCIM

Hey Katelyn,

Multifamily in general can be difficult to jump into and compete given how competitive the market is for the product but to just get your foot in the door you will need to give the property owners a call systematically by adding value to them. As a CRE broker, I tell all my mentees that it's not about selling a deal today but planting the seeds with an owner that you are the one they should call if they ever decide to sell.

I don't focus on multifamily but the way I prospect is by pulling all the properties I want to call the owners on from CoStar and then I send them a flyer or an email (if I can locate their email) and then cold call them a week later to discuss. As an example, you can send them an email of a recent property that sold and set a new high for the market then call them to discuss how that affects their property. This strategy tells the prospect that you have the market knowledge and the way you present the knowledge is important too to show that you are knowledgeable of CRE in genral.

This is a very general approach, but it has worked for me in my farm and if you call everyone at least once a quarter, you should be able to pick up at least a 10% market share of the sales in the area. Every Multifamily property sells on average every 10 years. If you have a farm of 1000 properties, that is about 100 sales in your farm every year. If you get 10% market share of that, that would be 10 sales a year and at those price points, that could be a very good living. Multifamily is very competitive so you may have to select a large farm area and maybe call every 8 weeks if necessary.

Regards,

James Storey, CCIM

Hey John,

It depends on if you are taking a GP (general partner) position in the investment or an LP (limited partner) position. The way you asked the question makes me think that you are structuring as a limited partner in which an annual cash flow yield (set by you and your partner) will be merited with lower upside on equity if much at all unless you negotiate upside. On the other hand, if you are taking a GP position (your name will be on the operating agreement), then it depends on how much the property cash flows will determine your individual yield. 

James Storey, CCIM

Hey Greg,

For most NNN leases, the landlord pays taxes, insurance, management, and CAM directly and the tenants reimburse the landlord a prorated share (based on their percentage occupancy of the building) of those expenses back to the landlord in the form of "additional rent". This is calculated at the end of every year by adding up all the expenses for the year and reconciling any less of or more additional rent that is due or owed back to the tenants. In these types of leases, the tenant pays a form of additional rent every month that is budgeted from the previous year's expenses and then made whole at the end of the year as budgeted expenses are compared to actual expenses. This can make an accounting mess but it is what NNN lease are ran which why it can be important to have a manager manage all collections.

On the other hand, on some single tenant net lease property, some leases are structured as an "absolute net lease" where the tenant directly pays taxes, insurance, management, and CAM. The landlord then only collects the base rent as their Net Operating Income (NOI) and calls it a day. I have seen these in industrial investments but only on some single tenant net leased properties.

Hope this helps.

James Storey, CCIM

Hey Aamir,

First off, all broker opinion of values look different as they all have their own style. And also, some include comps and capital market assumptions for cap rate based on market setiments which can come from costar to. We send a BOV to all our client building owners every year free of charge and we also collect data from local appraisers to build our own comp records. Data is king in this field and the broker with the best data wins.

James Storey, CCIM

Hello Kevin,

Your debt service (loan payment) is NOT considered in the NOI calculation. Debt service is subtracted from NOI to figure your before tax cash flow.

James Storey, CCIM

Do you have a phase 1 with a NFA letter? If not, I think I would at least do that and put the trust in the environmental experts. There could be other unseen environmental risks that the old phase 2 did not remediate or something affecting the area since 2012. There isn't really any good way to remove all the risk without a no further actions letter. In my experience, a phase 1 will cost you about $1,000-$3,000. Just my two cents and what I would do.

Hey Jacob,

If this is a leased property, you will need to know the lease rate, service (type of lease), term (duration), and what expenses you would be required to pay. From there you should be able to calculate your net operating income (NOI) which is the income you earn before paying any debt service assuming you are financing the investment.

Regards,

James Storey, CCIM