All Forum Posts by: Ryan Smyth

I'd like to see a forum for those working on larger deals.  >40-50 units.  I work on large apartment acquisitions and the asset management of these deals.  Would be nice to bounce ideas/trends off others in this space, especially those who have access to CoStar, Axiometrics, etc.

Discussions on cap rates, IRR projections, revenue optimization, amenity trends, etc.

I usually peruse the multifamily forum when I visit this site but it is full of duplex/quadplex questions.

Just my two cents as a "seasoned" guy.

Being able to raise outside equity requires detailed knowledge as to how to put the deal together financially and how the “splits” work.  There are many ways to structure a deal.

Tailor an offer with multiple “outs” that give you the time and opportunity to go out and raise the equity for the deal.  You’ll need to take the financials and put together an Offering Memordandum to present to investors (usually takes me a few days).  The OM should show an investors projected rate of return over the intended hold period.  This allows them to make an informed decision on the investment.  You’ll want to factor in your promotes for putting the deal together as well.

Now, the seller may opt not to accept your offer if you have to raise the equity (depends on the seller and market), but it’s worth a shot.  I failed to raise the equity needed for a deal of mine and the seller refunded my deposit since I was up front that I needed to raise the equity or couldn’t do the deal.

Excuse my typos as I can’t go back and edit my posts on my iPad.

Have you contacted any PMs in the Pittsburgh area?  I'm sure there have to be some based in the South Hills area.

 I like to define cap rate as a simple way to measure the cost of an income stream.

Class A assets in primary markets have low cap rates.  For example, hypothetically speaking an asset cash flowing $100K in a downtown metro would trade at a 5 cap or for $2MM: $100K/$2MM = 5%.

Take a Class B asset in a secondary market that cash flows the same amount, and it’ll check in at a 7 cap (~$1.43MM).

So, same cash flow, but totally different price to pay.  Why?  A Class A asset in a metro area is more insulated from risk and with less unknowns - safer placement of equity.  Class B is a bit riskier in a secondary market, meaning more unknowns for the buyer, resulting in a higher cap.

Cap rate compression is when an area begins to see a lot of investment and new product, making it a more desirable area to place capital, which in turn compresses cap rates downward making the real estate more expensive to purchase.

That was a very long winded explanation, but being able to decipher cap rate trends allows you to see the up and coming markets as they happen.

 You're probably seeing cap rate compression in your area then.  You'll want to aim for an emerging submarket.  Maybe one that hasn't experienced a lot of the boom, but is primed to benefit next from the influx of jobs/people.  These emerging submarkets will begin to see an influx of capital into home flips, renovation of office/retail centers and permitting for new construction.  Cap rates should still be a bit higher in these areas.

 This assumes she signed a buyer rep agreement with the original agent?  If the original agent showed the property but contributed nothing else and had no buyer rep agreement in place, one could legally argue she was not the procuring cause at this point in time - this is typically on a case by case basis.

Georgee, your best course of action is the one you’re taking.  Be transparent.  Then, get a commercial broker for any further commercial transactions.  Residential agents usually aren’t very well versed in commercial -  it’s a whole different beast.

 Correct.  My company does only non-recourse via insurance or Fannie/Freddie.  5-7 year interest only as well.  These are on very large deals, though.

Best thing to do is drive, and drive, and drive.  When I’m studying a new market for my company, I’ll spend hours driving streets taking notes of what I’m seeing:

- Where are the demand drivers (employers, large retail power centers/shopping)

- What is the development pipeline in the area?  Is there an influx of new capital?

- Crime.  Crime is obviously a huge factor.

- Schools.  Same here.  School district quality and their boundaries are very important to know.

- Zoning/NIMBYism.

- Quality of the real estate - what are the condition of the homes?  What class of retail is nearby?

- Study housing trends - American Fact Finder is a great free service for information into an areas demo makeup.

I could go on, but these are some of the basics.  Once you know a market, then you can start plugging accurate numbers into your pro forma.

You need to get intimately familiar with your target market and how to financially analyze the deals in that market.