All Forum Posts by: Spencer Gray

If you are achieving or exceeding market rate rents then why are repairs necessary? Have you already created value or did you buy with no upside left? If the market is so hot then why not sell and buy an asset where you can force value? 

If you are accredited I would look into investing as a Limited Partner in a Syndication in a market that you are comfortable with. Just keep in mind that it's more about underwriting and evaluating the sponsor rather than the deal (but also underwrite the deal!)

You'll cut out the learning curve, save time which=$ and leverage the experience of professionals while still beating the returns of many smaller independent operators doing smaller deals. If you want to invest passively this is a great option.

Take all of your and others concerns about the asset, the financing, etc and think about turning around and selling it. Even if there is major upside in operating it, the exit is going to be rough. Unless boarding houses is your niche this is a fast pass. 

@Max T. you should! The point is to force appreciation by raising rents.

It's not just the appetite for multifamily/rental real estate by new investors, it's the increased appetite from debt funds and debt investors. 

Lenders are competing for market share and they, like us, believe the fundamentals remain strong therefore are willing to go further and further out on a limb to make deals to gain market share. 

In the past 6-8 months the rate that I am contacted by lenders and debt brokers has more than tripled. They see very little risk, especially in a first or second position, therefore are willing to do more and more.

A few years ago most deals I saw were underwritten with maybe 6 months of I/O while on a bridge loan before locking in permanent debt. The deal would have had good cash-flow (8%+) out of the gate w/o IO.

As the cap rate / 10YUST spread compressed we saw deals that needed 1-2 years of I/O to achieve attractive returns. Then it was 3-5 years of I/O. When the 10 year was peaking at 3.25% lenders and sponsors started underwriting deals with 7+ years of I/O.

Deals are/were being done that would never pencil without creative financing.

Don't get me wrong, I hate dead equity and I would rather create equity via forced appreciation rather than amortization. But if terms change, inflation really picks up and/or cap rates or interest rates expand there will be some deals that do not pencil when their term is up. The owners hopefully will have cash available to right the ship.

This is a time where very savvy and sophisticated operators will be fine, even prosper, however I am certain that there are deals being done that are exposed to multiple layers of risk. 

There are still strong markets and good deals out there but it's not like several years ago where you could have literally bought anything and cap rate compression would make you a winner. It took little skill to make a deal successful. Now it takes patience, skill and the right strategy. 

The odds are for music to keep playing and for strong demand to continue to keep the market afloat. That being said the wrench that will get in our gears is not something that is NOT on our radar. Most deals will be ok, they will survive but not thrive. But there will be some left dancing when there are no seats left and they will get burnt and loose money. 

One can only hope that patience pays off and we have the foresight to identify when those opportunities occur and strike when others are getting out of the market.

The first hurdle is how may sponsors/syndicators have actually executed on a sizeable deal like the one they are selling. 

The largest pool (no idea on %) have never done a larger multifamily deal, maybe never a deal at all. 

Then how many have taken a deal full cycle, i.e: win a deal, raise capital, close, execute business plan, exit deal? What was the result?

That doesn't mean that someone who hasn't taken a deal full cycle or even completed a deal isn't competent, they just don't have a track record to show that they are competent. 

There is no general rule as to how many sponsors are good and bad, mostly because investing (life in general) isn't that black and white.

Just like @Aaron K. said, make sure you know what to look for and the questions to ask so you can determine if someone is the real deal or not. Keep reading, posting questions on the forum and getting educated throughout the process. Look at deals, learn to reverse engineer sponsors underwriting, or better yet, underwrite deals yourself. 

It's a marathon not a sprint. Good luck!

I'm in a similar position in my business. Do you have a budget in mind for a salary for an asset manager?

@Tj Hines I was specifically talking about bridge financing, similar to a construction loan, that is a short term (2-3 years with extensions), i/o, usually with a floating rate that we plan to take out within the first year of ownership. We normally take it out with fixed, non recourse agency debt 10-12 yr term or non recourse FHA/HUD 223(f) w/ a 30 year term. We started using a bridge into HUD deals since we were more confident closing with a bridge then closing with HUD as it gives us extra time to go through the process.

We have also used bridge loans before before taking it out with fixed agency financing. The reasoning is that it gives us more time to weigh our options and doesn't put us into a corner, especially if finance contingencies are waived and hard earnest money was put up. I've heard horror stories about Fannie Mae re-trading on terms and we don't want to be forced into a long term debt product with unacceptable terms or loose hard money and loose a good deal. That being said, it's not cheap to pay almost 2x fees but could be cheaper than to loose earnest money. 

I've just noticed not as many operators using a bridge product if they are planning on using agency, and wanted to either confirm or deny that observation.

We have used mezzanize financing for HUD assumptions that are already somewhat mature, bringing the LTV down to 75%+-, but rarely on deep value add deals.

@Account Closed

The acquisition fee is usually part of the "Uses" from the "Sources and Uses" table that lists sources of capital (equity and debt), and what that capital will be used for: purchase price, funding reserves, legal fees, lender fee, due diligence costs, title, and acquisition fee. The acquisition fee is paid from equity, just like DD costs and other fees and expenses related to the deal. It's not an additional lump sum the investor has to pay or that you have to pay the fee on top of their investment amount, but the more equity in the deal the lower the cash on cash return will be. 

Hey @Gino Barbaro thanks for responding -

Do you think it makes sense then to close with a bridge even if the property is stabilized and then refinance to agency hopefully with a better T-3? Or if the asset is already stabilized go straight into agency to avoid the extra round of fees?

We have a great relationship with a local bank and almost always close with their bridge product regardless of being stabilized or not but have been contemplating whether it's worth it to just go straight to Fannie/Freddie. These are B class

moderate value add and hold/projects.