All Forum Posts by: Jim Froehlich

@Kris L., @Randy Bloch, @Paul Allen, and @Thomas Rutkowski, thanks for adding your thoughts to the table! I have read a few books on the history of Social Security in the past and appreciate the different viewpoints of the predicament (or safety net), depending on your view that we find ourselves in.  In my view, the moment after 1935 when money was taken from SS fund to use for other budget items, is the moment it became a vote-grabbing, money-sucking Ponzi scheme! Of course, if and when it ever becomes my turn to go to the trough and collect my share of what's left, I'm sure I'll be grateful to have it. (and am very grateful as family systems and support structures continue to break down, that elderly and disabled people are not left with nothing except charities), which historically (especially faith-based) closed the gaps where families couldn't take care of themselves.

@Randy Bloch, the only thing I sharply disagree with you on, just based on my belief system is:

"...But I don’t think people should be able to direct their own investments as someone needs to protect people from doing stupid stuff."

I don't think people need the Govt. (on any level) to protect them from themselves. That's why I still have the right to NOT wear my seat belt here in New Hampshire or NOT wear a helmet...as long as the harm done is to MYSELF, then I certainly don't need any Govt. telling me what to do!  "Live Free or Die" (and likely so without a helmet or seat belt on!) 

...on a related subject, this is kind of why I was irked when I discovered the SEC law (1934) meant to "protect" all the poor idiotic people (meaning anyone not in top 1%) from investing in "shares" of real estate...based on knee-jerk reaction to Crash of 1929 (infamous widows, poor people, etc.).  Again, and ironically, it solidified the ability of the "rich to get richer" (i.e. accredited investors).  At least now with JOBS ACT of 2012, us common folk can invest $2K per year like the rich people in blind syndications!

The more I learn, the less I understand...but I find it all amusing! (As Kris Kristofferson once wrote, Freedom's just another word for nothing left to lose)

Thanks Greg for making me feel not crazy here! 

@Mike Dymski, thanks for the additional feedback!  The SS units sound like a great investment!  

wow...that was my 100th post...I'm doing this one just so I only have about 28,899 posts to go before I'm as active on BP as @Jay Hinrichs! hah

@Greg Dickerson, @Jay Hinrichs, and @Mike Dymski, thanks for all the great feedback here, I really appreciate your perspectives! I'll say I've learned a ton by being on phone calls with experienced developers and private equity providers over the last few months. I was hyper-focused on absorption rates within markets we've been looking at, along with Year 0 vs. stabilization projections (like Year 3), and checking validity of rent $/sf of other Class A multi-family in competing market and believe these are all important. However, once involved in the discussions, I noted that experienced guys on equity side appear to pretty much trust the experienced developer's numbers, round down on estimated sales/exit - as in "you're projecting a sale of $92.5M, let's just say $90M", and then reminding developer that a very high preferred rate will be given to passive investors, so if projections are off, they will be the first to suffer, followed by the equity sponsor (i.e. very good alignment of interests since these guys are all taking very little fees, instead focusing on back end and trust in themselves and their deals.) Finally, since the CAP rate at time of sale is so sensitive for IRR projections, I'm hearing various mitigation strategies for driving CAP rate lower or worst-case holding for awhile until sales conditions improve.

One of my main points is following these discussions (where I've been focused on the trees and suddenly the forest becomes clear), I'm digging back into files (looking at the trees) wondering, "okay, how can this thing go wrong?!"

Your input is helping me confirm where to look and what to pay attention to.

Also, relative to @Mike Dymski's point, maybe I'm naive, but I'm starting to feel like investing in new developments (of shovel ready, experienced crews) is LESS risky than counting on refinance of short-term bridge loans or even value-add MF with 5 or 10 year notes (of which I'm involved in a handful of syndications).  That's of course, assuming the developments have safer long-term debt.

@Greg Dickerson, thanks for the great feedback!  I am definitely intrigued with the idea of "running stress tests and scenario tests".  I can say that I notice experienced sponsors and investors seem to fret much less when the developers/partners coming to table have strong track record of success in the asset class and geography

This post is admittedly as much about venting as it is looking for opinions of others. Here's what crossed my mind this morning: Social Security. I'm turning 49 this year and have been working (on the books) since age 15. In general, I've assumed for the past 20 years that the Social Security Administration would be bankrupt by the time I retire (hence the passion for real estate!)  

I went to the SSA site and did some quick math using their estimators. Turns out that to date I've contributed about $196K to SSA over the years; if I work at my same pace (W2 job), I will contribute another $188K over the next 19 years and retire at age 67.  Given this, I would have to live to age 77 to even get back the money I put in (at roughly $3,100/month). Conversely, if I just STOPPED working (according to SSA estimates) and waited till age 62 for early retirement, I would get $1,700 for 9 yrs, 8 months before I got back money I contributed. So starting at age 71, I would be getting $1,700/month (and finally collecting my return!) Under this hypothetical, I would also have kept about $10K/year for myself to invest over those 20+ years.

Funny math!  Hmmm...now how to get off the books without stealing someone's identity?

So, I definitely have incentive to STOP WORKING NOW, in terms of my Social Security dividends - or at least stop contributing now to that fund! HAHA!

Reading this was even better: "The Social Security trust funds are invested entirely in U.S. Treasury securities. Like the Treasury bills, notes, and bonds purchased by private investors around the world, the Treasury securities that the trust funds hold are backed by the full faith and credit of the U.S. government."   ...full faith and (endless) credit of the U.S. government...

Can someone please point the Treasury Department to BP forum?  Please (Social Security Admin.) put my money in self-storage units! (Also, my Dad worked from ages 16-to-64 then died without collecting, so he told me you could take his contributions and put them in self-storage units as well!)

Any legitimate Social Security strategies beyond my cynicism?  @Thomas Rutkowski, can you please help the Treasury Dept. out?

Experienced developers (or underwriters) of large multi-units or commercial deals:  What do you think are the most important factors when analyzing deals that are close to execution (i.e. past entitlement phase)?  I've been vetting deals lately for private equity consideration and notice the due diligence files number between 150-250 (many legal, accounting, civil engineering).  Beyond credentials of the developer and great market research, what do experienced people think are the key variables to look at for whether a deal is likely to perform as predicted?  Most likely red flags? What have you missed in the past that came back to hurt? What things hurt your performance that were unpredictable? 

@Sanjay Raj, I would recommend talking over options with someone in the know on laws/taxes in your area. Kirtan Patel from KPPB in Atlanta is very experienced (not sure how far Milton is from there) - and no, I don't have any affiliation, but my best friend from college is a Criminal Defense Attorney in Atlanta and recently pointed me towards Kirtan as he knows ongoing developments, multi-units, etc. It seems to me that MOST of the RE folks who've reached your level are in some type of commercial RE and generally passive investing in large multi-units seems to do well, even during the last real estate bust. Research over the past 40+ years shows that the only RE investment that did better was self-storage units. If I was sitting on $2M, I would lean towards breaking it up between 2-3 PROVEN private equity placement/management firms that focus on: a) commercial development (develop/sell), and b) mult-unit buy/hold. I was surprised to see @Greg Dickerson, state: "You could easily double that in a year with doing flips and small infill development projects." He is a very experienced guy, so I think he means actively doing that, otherwise, I've not heard any experienced developers saying that PASSIVE investors can easily double anything in a year without significant risk (like paying for entitlements that don't work out).  If so, go find those guys that can offer you 50-100% preferred return and can show you a proven track record!!

@Justin Windham, @Dmitriy Fomichenko, and @George Blower.  Thanks for the incredible feedback!