All Forum Posts by: Spencer Gray

 Yes! *Opportunity Zones. 

And good point about being able to leverage that amount of equity for a piece of the GP, major decision provisions, or a separate class of equity. 

If I were seller I would consider a project in an opportunity some to shelter capital gains if they're ok with a long term hold. 

The rule of thumb is 50% and in reality it's usually a range between 45-55% +-. 

$105k of NOI with 80K of debt service is still a 1.31 DSCR which is not that bad on a full amortizing loan. Why wouldn't you be able to put a permanent loan in place?

I think looking at both is useful but it really depends on the location of the deal itself (i.e is it in the CBD or a sub-market, etc). You also have to look at the historical trend over the last 10+ years to see how the market responds to an economic downturn. I know some market that have unbelievably low unemployment rates now but skyrocketed during TGR. I prefer markets that are relatively stable over time regardless of economic conditions. That usually requires the local economy to be diversified by having many industries and larger firms vs. one large company or one primary industry. I also like communities with robust healthcare networks and universities as both aren't as exposed to economic volatility. 

For a city that is in two states you could take an aggregate of both, or underwrite each states side of the city on its own. 

What about PM fee? Cap ex reserves?

 Is 5% vacancy economic or physical? What are you basing the property tax figure off of? That seems like a very round number and I've never had taxes and insurance equal each other. 

5% vacancy means that only 1.6 units will be vacant on average throughout the year. While that is possible I would use at least 10% economic vacancy to account for turn over, loss to lease and any concessions. Also, if this is a major renovation you're likely to see much lower occupancy during the rehab. 

Without a deeper dive these numbers don't seem right.

Preface: I'm no economist but find discussing macro currents very interesting as they relate directly or indirectly to multifamily investing (investing in general). 

With a tight labor market, low interest rates ,QE and an economy deep into one of the largest expansions in history we still see very little signs of inflation. 

Technology and market disruptors are a major driving force of the deflation we've seen. A large percentage of the inflation in today's market actually comes from real estate and rising rents. Many operators are raising rents by at least 3% / yr with many trying to get 5%+ with value add strategies. Wage growth is finally around 3% after being stuck around 2% for the last decade but it's hardly on a tear. 

Until inflation (other than housing) picks up there will be resistance to raising rents in many (not all) markets.

Real estate in general is a massive and mature industry that has yet to see the kind of disruption that has occurred in many other industries. AirBnB,  Co-Working are definitely having an impact but is there a black swan out there not on our radar? 

As Jerome Powell testified before congress today it made me believe that at least the Fed believes that they can have as loose of a monetary policy as possible without causing significant inflation. The more important strategy from the Fed seems to be to keep the music playing as long as possible. 

How does all of this effect your near and long term strategy?

It depends on how active of an investor you want to be and there certainly is a wide spectrum.  That being said, no matter how passive you want to be there is no such thing as being 100% passive and hands off. the closer you are to being hands off you do so at your own risk. 

On one end of the spectrum would be a "passive" investor who invests their capital as debt via a note or as a limited partner taking an equity position in the holding company of the property, usually via syndication . In this scenario the investor still has to put some time in to evaluate opportunities and sponsors as well as track performance and stay on top of the sponsor/operator. Lots of investors do this and have time for a full time job as well. 

On the other end of the spectrum is operating more like a traditional business, full time. This could involve sourcing deals, raising funds, operating a property management company, operating construction company, operating an asset management firm, private equity firm, etc. This can be done in addition to another job but is more difficult. 

For me personally on any given day I can be be found - 

Communicating with my team (CPA, attorney, brokers, lenders)

Underwriting opportunities

Networking with investors and other real estate professionals 

Reading/listening to podcasts/audio books and continuing to educate myself

Touring prospect properties

Touring assets in our portfolio

Meetings/calls with partners

Admin work

I unfortunately haven't been able to attend previous meetups but will be at this one!

an 18% IRR isn't out of the range for a 5 year hold, depending on the market and type of deal.

Here are a few red flags I look for -

High occupancy assumptions

Low exit cap rate

Short term or variable interest debt

Overly selective comps

No or little experience in the market (not a deal killer but must have plan)

New strategy for the sponsor (is it a total reposition/re-tenant and they have only done light value add)

Low payroll assumption 

No PM fee

If they require you to guarantee debt (it's ok to be asked but you should be compensated)

No expense growth

Compare year 1 GPR with the T-12 GPR

If sponsor refuses to give you T-12 or rent roll

Expense / Income ratio under 40%

If the deal relies on an early refinance 

Hope this helps!