All Forum Posts by: Jonathan Twombly

@Account Closed  Most desirable commercial listings never make it to a website - even the brokers' own website.  If they are pocket listings, they are shown only to investors who the broker thinks are a good potential fit.  If they are marketed listings, they are generally blasted to the broker's email list.  In this market, that's all it takes to market a deal.  What makes it to Loopnet is generally the deals that no one else wanted.

The way to get good commercial deals, then, is to develop relationships with commercial brokers.  One place to start is to identify them and sign up on their websites.  At least that way you will see the publicly marketed commercial listings.  You can start to engage with the brokers this way and develop relationships with them.

This takes time.  In my case, it took me nearly a year to get into contract on my first deal.  That deal fell through, and I changed markets, and I had to start all over again.  It took me another year to get my first contract in the new market.

@Fernando Landeros, commercial brokers generally don't deal with new investors, so it is going to be tough to find them by asking them to contact you.

You must reach out to them, and when you do you must be very specific about what you are asking to see, in terms of price range, size, cap rate expectations, submarket, due diligence materials required, time to close, etc.  Most of all, you need to be able to demonstrate to them your ability to close any deal that they bring you that fits your parameters.

Brokers work on commission, so they don't have time to waste.  They have a bias against new investors, because their perception is that they are generally time-wasters.  Whether it's fair in your case or not, whenever you are a new investor, you need to overcome the brokers' bias against ALL new investors.  It requires extra preparation and self-marketing to break through.

@Tom Balch  Fortunately, the tax benefits of real estate, like depreciation, are linked to the property and not to the person who owns the property.  So even high earners get the benefit of depreciation.  But it's only a tax deferment, not an elimination of tax.  Your tax basis in the property decreases as you depreciate the property, so you owe more tax on the back end.

@Account Closed

If you are serious about this, I have a good friend who specializes in helping property owners in New York City develop their property without relinquishing ownership.  (Typically, they sell to a developer, but he can help you structure a deal to do it yourself.)  He's been in the NYC business as an architect, owners' rep, and developer for 40 years.  If you want an introduction, please reach out by PM and I will set it up.

@Jack B.  We're in the same boat.  Asset prices are too high to make sense to buy.  I believe a correction is 12-24 months away and I am advising my clients to get dry powder ready for when the buying opportunities come.

I'm not predicting a crash.  I think we are in better shape fundamentally than in 2008.  But I do think that this cycle is really long in the tooth and people are starting to pull back rather than buy at inflated prices.  Any shock, like rising interest rates, could tip it over the edge, in my humble view.

@Andrew McIntyre My guesses would either be that they are owned by a non-profit organization, so they are tax-exempt or they were given a tax exemption as an incentive to build them.  There could be other reasons as well, but those are my guesses.  

 Treat him as a lender if he's lending the money.  My example was if he were an equity investor.  It doesn't change if he's supplying 100 percent of the capital for the deal, though if you do a preferred return, then you will be overwhelmed by the pref payments. 

You first have to work out whether he is a lender or an investor. Then you can talk structure.

But it seems to me that if he's supplying all the capital and you are supplying the work, that something like a straight profit share makes the most sense, either 90-10 or 80-20. 

 I see that my last response did not really answer your question.  

1.  Assuming I had the net worth, as described in the last example, I would go for 100+ unit deals.  The issue for me in my response was not the deals - it was having to share profits when I am doing all the work.  Also the effort of pulling teeth to get people to sign on debt along with you, even though that debt carries very low risk.  And fund-raising is a strain.  But if you have the funds set up from other people, you don't have that issue.

2. Partnership is good, if the partner is experienced and you see eye-to-eye.  There are lots of people out there with the experience; finding someone who you share values with is the harder part.  So make sure you find that person if you want it to be a long-term partnership.

There are also mentors out there - free or paid.  Either can be good if it is the right person.  If you can access such a person, a mentor who is willing to mentor you in return for a part of the deal may be the best option, although, again, you are now married to this person, so you want to make sure that the fit is good.  A paid mentor could also be appropriate because your risk is limited to what you paid them.  If you don't like them, you move on.

Even though I learned a lot from my partner, there was lot I had to learn by experience once I got into deals.  There was no substitute for that.  And every deal is different, so even taking two deals up to the point just before closing did not give me any experience in what can happen at closing - not just with sellers but with lenders - as well as what happens once you actually have to manage or asset manage the deal.

@Rob Barry

So, here is the thing about commercial real estate that really separates it from residential:  the size of your net worth limits the amount of debt you can take on, regardless of how good the deal is.  So, if you have $1,000,000 liquid and that constitutes the entirety of your net worth, a lender will give you no more than $1,000,000 in a commercial mortgage.

You cannot buy a $4,000,000 property with your $1,000,000 and 75% LTV. (Though you could buy 4 $1,000,000 properties with $250,000 down and 75% LTV on each one, using the equity in the other deals to satisfy the net worth requirement. Silly, but that is the way it works.)

If you have a net worth of $3,000,000 (not including your $1,000,000 for the equity down payment), and you have 10% in cash, then you can get a commercial mortgage.

Fortunately, you can also combine with teammates.  So, if you have friends who are willing to contribute their balance sheets to the deal, you can get debt up to the amount of your combined net worths.

This is still true, even if you seek non-recourse debt. There is actually no such thing as true non-recourse debt in the commercial space (unless you go below certain LTV thresholds, which depend on the lender). At 75% LTV, all commercial debt is subject to what is variously called "good guy guarantees", "good act guarantees", "bad boy carveouts," etc. Essentially, these say if you commit fraud or do other bad acts, the debt becomes full recourse. That is why the lenders still impose the balance sheet requirements - if you're a bad guy, they want to be able to collect from you. You and your partners will have to sign these personally. The only way around this is to go below the LTV thresholds or to start a fund that signs on the debt, but in the fund case, the lenders will still require at least one "warm body" (i.e., a person) to sign individually.

@Jerry Poon:  @Michael Le  has it exactly right. Syndications are the way to go if you want to grow.  But starting off smaller, so you can get the debt without a balance sheet partner, is what I'd recommend.  Of course others would disagree.  It depends on finding the right partner and finding any balance sheet partner is not easy.  In any rate you're more likely to find one when you're out there doing deals and have demonstrated your expertise.