All Forum Posts by: John Cho

Ive seen a proliferation of deals in the last year with two equity shares consisting of preferred equity and the more typical common equity that is common to more typical syndication deals. The Class A preferred equity is often 1-2% higher in pref than the common equity with no participation on the upside (refinance/sale).  Class B common equity with lower pref than in deals past with more typical waterfall splits.  

Is there a reason why syndicators are going to this model? It seems like a crappy deal for the LP compared to a simpler structure and was wondering if there was something Im missing besides the GP needing to raise money at inflated prices to pencil their deals at an acceptable pro forma IRR.

Here are the cons as i see it

Class A Preferred equity

-taking on equity risk (loss of capital) in a non liqiuid asset locked for 3-7 years with no participation on the upside on refinance or sale. Pref is usually 9-10% but again this is equity behind all the loans in the capital stack. Ive also seen this being deceptively marketed as a being safe or conservative as if it is a 1st lien secured loan to the LLC.

Class B common equity   
-increased risk of capital loss by having another layer above you in the capital stack if the deal goes south and performs sub par. 

-decreased pref compared to deals with just a common equity structure 
   

What is the difference between different intermediaries or how would you evaluate them assuming basic conditions are met (timely communication, can complete transaction within IRS deadlines and not a crook).  Im trying to compare a bigger company like IPX versus more mom and pop.   

I've looked at multiple turnkey companies (>10) these last few weeks and it seems to be a suboptimal way to use capital. You buy at or above market price. The new construction stuff barely cash flows and they often pitch appreciation as a key selling point. The older houses in CF markets with a rent to value ratio >1 like Indiana seems to be a capex bomb the longer you hold wiping out years of cash flow. This isnt accounting for the usual tenant issues with SFH that will decrease cash flow and returns. Its also annoying that the prof forma has widely optimistic rents and downplays expenses such as cost for tenant lease up and vacancy.

I would be curious if anyone has assembled a portfolio of these (>10) and what the long term return and exit strategy you are pursuing. I prefer being a LP in syndicated MF deal with professional management for better use of capital but I would be interested if anyone has found a way to make these work passively up to the 10 Fannie Mae limit for loans.  I think it was Brandon Hall the CPA guy that said most of clients that pursue turnkey dont really come out ahead.  

What's the best way to use to passive losses generated from accelerated depreciation if you are not a RE professional and your AGI is >150k?

Im in hudson count NJ in northern NJ

Thanks for the all advice.  Terminated services with PM company.   I read through the contract I signed years ago and there is no termination clause or 30 days notice.  

I am a out of state owner of a condo located in NJ. I have used a property management company for over 9 years without any major problems.  The last two months they have become completely unresponsive by email and phone.  One employee that bothers to respond to my emails has given me false info, basically ignores my questions/concerns, and is just completely unprofessional.  My tenant is supposed to vacate next month and I want to list my unit ASAP.  Any advice on how I can handle this situation?