All Forum Posts by: Matthew Drouin

Spencer, congratulations on the acquisitions.  Once you can figure out how to buy your second property, then you've started beginning to master scale.

But I have a questions, you said:

"Our end goal is to build wealth over the next several years and leverage that wealth to buy multifamily commercial properties!"

You might be ready sooner than you think.  It took me 11 years, 25 properties and 76 doors to replace my income but when I bought my first larger commercial deal, it replaced my wife's income in one year.  Why didn't I do it sooner?  Primarily self limiting beliefs.

One of my clients just closed on their first commercial deal and they only had one duplex before I started working with them.  Just something to think about.  If you want to get on a one on one, I'd be happy to look at your current situation and give you advice on next steps.

Cheers,

Investment Info:

Office Space commercial investment investment.

Purchase price: $1,500,000

60k sqft office building that we are redeveloping into 78 market rate apartment homes in 2026. In 2021 we bought the building for $1.5M using private lenders, pushed the occupancy from 50% to 80% occupancy and it appraised for $3.125M, allowing us to pay back the private mortgage.
Right now, we are in the predevelopment process of design and piecing together the capital stack for the redevelopment deal, which will be made up of historic tax credit equity, RestoreNY Grant, DRI Grant, etc.

What made you interested in investing in this type of deal?

Over 5 years ago, I used to marvel at the architecture of this building and told myself that I'd own it one day and reimagine it. It was built as an office building in 1888. Office has been in decline for several decades in downtown Rochester, so it's highest and best use is residential.

How did you find this deal and how did you negotiate it?

I called the leasing broker and asked if the owner would be open to an offer. We negotiated it down from their original asking price of $1.8M but it needed to be a cash deal because the building was 50% occupied and of what WAS occupied was month to month office tenants. (Banks typically want to see 1 Year+ leases). The deal was contingent upon 60 day due diligence and a clean Phase 1 environmental assessment.

How did you finance this deal?

One of our long time investment partners wrote the check for the entire $1.5M. We paid them 9% interest (they put a private mortgage on the property) and give them 19% membership interest in the holding company LLC

How did you add value to the deal?

Phase 1 was quickly leasing up small office space. I bought it from 50% occupancy up to 80% occupancy. Primarily through Facebook Marketplace, Loopnet and Craigslist.

What was the outcome?

We got it appraised for traditional financing and it came back at $3.125M so we were able to get our investor their $1.5M back. We have been keeping it as office use until we get our construction financing set up along with all of the other funding sources.

Lessons learned? Challenges?

Beware of elevators in old buildings. This is an 11 story building and both passenger elevators went down at the same time for about 3 months. Tenants ended up demanding concessions or just plain skipped out of their lease and disappeared.
Also, unbeknownst to us, the former owner tried poaching all of the month to month tenants to their building across the street. It was a gut punch to see the tenants whose income we were counting on mass exodus the building right after we closed

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Nextier Bank out of Butler PA was our lender for the refinance. They were super great to work with!

@William A Colas

Smart to partner.  When you are dealing with community banks, they actually like to see diversified ownership.  It spreads their risk.

In regard to market, there's a couple of different approaches my clients take:

1.) Markets that have 8%+ on stabilized cap rate deals. Generally we raise capital from investors who want a fixed income and have enough meat on the bone to keep all the equity in the deals and push the valuation and also obtain commercial financing where we can get 75-80% LTV financing and still maintain a DSCR of 1.2+

2.) Markets with sub 8% cap rates, generally the cash you need to raise is going to be true equity and since the cash flow would be too tight from a DSCR perspective, you have to put down way more than 20%. But assuming its a stable but growing market, every dollar of Net Operating Income you are able to force is explosive to the underlying asset value.

Under both of these scenarios, you do not need to syndicate as long as you don't go too big on the deal size.  I've built a $18M RE portfolio without ever having to do a syndication.

I hope I answered your question properly!

@Kody Smith

You mentioned syndication.  With your balance sheet and cash, you can put together creative deals without giving up equity and without using your cash but you are going to need to find a market and product which has 7-8% cap rates.

I invest in the northeast, Great Lakes area.

Diverse economies with education, healthcare as the back bone and tech as growth.

In your area, you'll have to raise way more capital in the form of equity just to meet DSCR with the banks.

@Jay Hinrichs thus why I relate to boomers so well lol

Retail strip and lifestyle centers are doing well.  But the shopping centers, most all of them have defaulted on their loans in our area.  What's really interesting is to see some of them being redeveloped into housing for seniors.

Also shopping patterns have changed with work flexibility, so many of these malls don't need as big of parking lots that they once did when people could only shop after work or on weekends.  So developers are building multifamily on these parking areas.

Since these areas aren't located on top of residential areas, the zoning approval process has a lot less friction and resistance from NIMBYs.

Here's an example in Rochester where an old Sears was turned into apartments for seniors.

https://www.passero.com/projects/skyview-park-senior-housing...

For multifamily developers, this could be an opportunity for building and partner with the mall owners.

Small wine town is all I needed to hear.

Seasonal tourism is usually not a great industry in which to build a sustainable business.

There are probably higher and better uses of your capital near high velocity metro areas.

We have small wine towns near our city in the finger lakes region of western NY.  And there’s no catalytic economic drivers for those areas.

Don’t do it unless you are doing it just for fun and pure speculation.  Which is fine.  Just make sure your expectations are there!

@Vange Logan happy to spend an hour with you over zoom and see what type of guidance or direction I can give you.  I made the transition to commercial about 8 years ago and happy to lend my insight

@Alexander Zeisberg we would contact the DMV.  When a Lien is recorded it goes onto the physical title.  It's been a while so the details are fuzzy in my mind.  But I would contact the owner of the park (assuming you're not buying the unit from them) and ask them.  They have something at state if things aren't done properly.

@Ibrahim Mawri my main concern is on exit strategy. Commercial properties owned in an HOA tend to have issues with financing. You'll want to make sure multiple banks look at the deal to see general appetite for financing.

What happened to us is we took over a string of condos from a non bank lender that foreclosed on the properties.  It was very difficult for us to find a bank to refinance the deal and also difficult for us to procure a buyer for the condos we didn't want.

The cap rates typically traded higher than a simple ownership interest.  The only thing that saved us is that we bought them cheap but our exit price was not nearly in line with what we thought we would get.