All Forum Posts by: Josh J.

This is 100000% wrong. 

The S&L crisis was FAR worse in terms of CRE default rates and price declines than 2008 (I literally built a pitch deck breaking this all down last week so I have dozens of Excel models and graphs to prove this occurs every 10-15 years or so).

After the S&L crisis you had guys buying stuff like retail properties next to NYU in the West Village of Manhattan (some of the priciest real estate on EARTH) at 10%+ cap rates despite buildings having a 30% vacancy rate. 

Prices were hit alot harder in 1990 because of the RTC liquidating huge amounts of distressed properties in a really short time frame and there was no extend and pretend like in '08. The RTC is why Barry Sternlicht is a gajillionaire today, he scooped up huge numbers of properties at rock bottom prices.

OP: I would have spent ALL my time buying distressed CRE debt because banks were giving the stuff away (I'm talking full recourse notes in non-judicial states were trading at 45% of UPB).

Also for a brief period in '09 you could bid on deals in pristine markets like the West Village in Manhattan or Buckhead in Atlanta with almost no competition. But I really would have loved to purchase some class C stuff to reposition because while A product became more attractive, C product was trading at truly amazing prices for 3 years after the crash. You would have seen wild cap rate compression and rent growth over the subsequent 6 years and acquired them at an irreplaceable basis.

Alot of investors are going to get CLOBBERED. 

Here's an example: look at how much of the job growth in SF is based on companies that lose billions of dollars a year and have no chance of ever making money. These are companies that only exist because they have access to cheap financing and can disappear as quickly as they appeared. Look at what happened in SF during the last crash, even ParkMerced went into default.

Underwriting today is absurdly lax and I don't get how anyone looking closely at CMBS issuance can say that CMBS lenders have learned their lesson.

I think that the lenders in this cycle have been just as reckless as last time but they're no longer banks, now they're the hedge funds, debt shops and PE firms who are making these loans. These are usually closed-end funds with redemption provisions in their subscription agreements. If these funds have non-performing assets on their books, and LPs start withdrawing their money, the funds will be forced to liquidate their NPLs en masse. 

We could see RTC all over again.

This is why we're spending so much time building out the infrastructure for our distressed debt arm.

Hi Zach,

DM me and I'll get you sorted out with a super sophisticated one I built personally that's really detailed down to each expense line item on a per unit & per square foot basis.

Adam, Brian explained it extremely well but I can add a couple of additional considerations.

1. Minimum preferred return is going to be very dependent on the LPs sophistication and net worth.

My fiance is a physician and I've met some really prominent orthopedic surgeons in her medical group at various functions. These are really high net worth guys who are sitting on a ton of cash making 50 bps in the bank. They're also unsophisticated when it comes to finance and they want to own multifamily deals in the NY Metro area forever. 

I'm doing a small deal personally (sub $3mm) with three of them and they're happy with a 5% preferred return and a 50/50 split above that. In addition, this is a "country club deal" where the preferred return is calculated based on the initial equity investment and it accrues but does not compound if there's a shortfall. 

Unsophisticated + high net worth often equals low preferred return requirements.

2. Where are you investing?

Investors in Manhattan multifamily properties are ecstatic with a 6% preferred return (not talking about ground up development, but a value-add acquisition). 

We're doing a value-add deal in Manhattan as we speak with a 6% pref and 70/30 split above that. But I spoke with these LPs about another deal we're looking at in Oklahoma City recently and they want a 9 pref, 80/20 to a 12, 70/30 to a 15 and 60/40 thereafter. 

The perceived safety of an investment is going to have a strong impact on the required hurdle rates for a preferred return. 

Lee, DM me and I'll walk you through the system we use. You've gotten alot of information in this thread but you'll need to add a few additional selections to really cull your list down to only mom & pop owners. It's time consuming but can be wildly profitable.

And candidly, with the exception of Brian Adams, I haven't met anyone who has purchased a large deal by contacting owners directly.

List the property based on 12 month forward NOI and don't readjust taxes or insurance. That's not your responsibility.

Not to sound like an unscrupulous jerk, but you're trying to sell this at the max value so you can 1031 into the next deal. 

Don't miss out on the chance to have someone overpay for your property because they're underwriting the deal assuming NOI is X when Y1 NOI will turn out to be .8X when it's all said and done.

I've spoken to Joe several times at length regarding some very sophisticated real estate topics, not only a very knowledgeable guy but a really nice guy to boot.