AP at larger properties

[Bruce Lynn]

Is it pretty common for larger mutlifamily to have big AP?   Is that just part of the AM/PM strategy?

I'm hearing more about AP on takeovers that the new ownership did not seem to have knowledge of, and high AP at existing properties that have cash flow issues.   I'm kind of surprised that vendors will keep providing services if their bills aren't being paid?   Does the PM/AM just keep switching vendors to see what they can get away with as times get tough and vendors cut off services?   Seems like word would get out, but maybe there are enough smaller vendors looking for work that they're willing to take a chance.

I remember back in the day there were issues with banks/lenders wanting us to take on AP for them with all the property preservations.  Utilities, lawn mowing, locksmith, etc.  They were notorious for not paying.  I'd end up putting it on the closing statement and not budge off of that.  They'd get so mad, that it made me think there was a strategy to get us to eat the costs.

[Greg Scott]

After closing on our first big apartment complex, we found out that the prior owner had not been paying any of their vendors.  They were a very unethical group.  They had been burning through vendors.  One of our biggest challenges in the first few months was to get vendors to come out to work on the property.  We had to go meet many vendors in person to show we were not that company from New Jersey that stiffed them.

We don't operate that way.  We always pay our bills on time. 

At that same property, we now have great relationships with our vendors.  They help us out in many ways, often just as a favor.  They have gotten so comfortable with us that sometimes we have to ask them to please bill us for stuff they should have invoiced weeks or months ago.

[Evan Polaski]

@Bruce Lynn, while I am guessing because I don't know "most" large multifamily, I would say it is very much manager dependent and likely to become more common place as many syndicators are struggling to make their mortgage payments.

Ownership companies are still run by people, and people that don't have enough money to pay their bills will start prioritizing who to pay based on the perceived risks of not paying.

As for taking over any outstanding bills, that is one of many issues of the common LLC transfer.  If the LLC signed the contract, and you buy the LLC to not have to record the real estate value, you are also taking on the liabilities of that LLC.  At which point, any good attorney should be doing what you used to, have in the contract that any contract and service will be paid in full up to the closing date.  Any unpaid bills will be the liability of the seller (of course then you need to pursue the seller in civil court to collect).

[Robert Rixer]

Not a total answer but it's often a liquidity issue. Floating rates have crushed some big multifamily syndications of late. Operations and lenders get handled first, vendors typically get pushed to the bottom of the pile. Vendors keep working with the promise that they will get made whole at some point in the near future with a sale, or debt restructuring. I've seen it this year even where a big sponsor wasn't paying anyone for months, gets one big exit and then all of a sudden is the most generous person alive. Everyone forgives and forgets and goes about their business. Wild

[Gino Barbaro]

@Bruce Lynn

We don't have a large AP. We need our vendors to show up. During due diligence, if there's any outstanding balances, they pay them.

When the economy takes a turn, people stop paying in every industry

Gino