All Forum Posts by: Solomon Rosenberg

As an LP, an important thing to look at on the monthly reports is the net income. I'm not just talking about the NOI, which is surely important. To assess the health of an investment, you should also consider the net income after the debt service.

To calculate this, subtract the mortgage payment from the NOI.

Observe how this trends over time. If there are significant negative amounts, it indicates that the property is bleeding cash. A small negative amount is acceptable, especially in the initial months of a value-add deal, and a good operator will have sufficient reserves for this period. However, if this negative trend persists, it can be a sign of trouble.

Thanks @Todd Dexheimer
I think that at the end of the day they will at least be able to salvage the initial investment,  also the returns of the past couple of years were not sustainable and even if its a total loss I am still way ahead. This post was not to discourage anyone from investing, just to share the lessons learned.

 I wouldn't do that, they are not bad actors,  these are C properties with heavy value add which is higher risk, and certainly mistakes were made.

I actually like to invest in syndications better then reit or stocks and have done well,  you need to understand it and as with any investments there will be losses here and there. The main thing is to learn from it and not repeat the mistakes.

 @Brian Burke Both of these properties have management issues, starting out 18 months ago occupancy was in mid 80's at takeover, but the economic vacancy was high a lot of delinquency, courts backed up and they couldn't evict fast enough, meanwhile they did most of the Capex but weren't able to fill all the upgraded units quickly, they changed management companies and things were getting better but not fast enough, and yes it has bridge debt with no rate cap, and the amount of the capital is to be able and hold on till they hit 90% occupancy and will be able to refinance.

Lessons I'm learning, 

Due diligence is walking every unit, looking at every lease and checking if money from leases are actually going into the bank. (I think proper due diligence would catch all the non paying tenants) as an LP I don't know how to check if that was done. 

Not having the right management can kill a deal (I'm looking at sponsors that self manage)

And understanding the debt structure. (Floating rate loans, with no rate cap) 

Within the past 2 weeks I got 2 capital calls from different sponsors, I'm assuming that there are many deals in similar situations.

The sponsors are saying, If they have enough capital to bring occupancy to 90% they will have better options to refinance or sell. That's true, however what if they can't deliver on the occupancy in a short period.

They say it's not a good market to sell now. True again, but what if interest rates stay volatile for longer than expected, and the market stays locked up longer.

Meanwhile the property is bleeding 6 figures monthly, and the added capital will only go so far, unless there is a major change in the interest rates soon, and that doesn't seem likely.

They also say if we don't infuse more capital we may lose our principle too, as they will be forced to sell at a loss. That is possible, but this may end up happening anyway.

So, what's the call? Do I put more money into these deals, or do I accept a dilution of my shares and put my money elsewhere?

Here is the thing - our brains are wired to be more sensitive to a loss compared to the possibility of even a much larger gain and we are biased to try and stop a loss.

I think I need to take a step back and think about this like it's a totally new deal, and I have no stake in it, would I invest in this deal now based on all the facts?

What do you think?

@Ronald Rohde not looking at vacant buildings, I want to know about the area should vacant buildings be a red flag l, or is the area changing. 

Thanks @Chris Reichenbach that would be great.