18 Unit Deal Log and Questions

[Andrew Anderson]

Hello BP! I've just entered contract on an 18 unit apartment complex (rehab value-add, buy/hold) in WA and will be posting updates here (along with questions!). This is my first multifamily investment and I put together a small syndicate of friends/family. Here are some deal specs. 

1. $1.35mm off-market acquisition

2. $173k sched gross inc

3. Pro-forma of .48 op exp/gross inc (way above market expense assumptions) to give cap ~6.7%

4. Structure between 30-40 yrs old

5. 75% LTV: 1.56 DSCR

6. Their rent is way below market. I assumed increasing to market rent over a 5 year period (infl. adjusted)

7. Exit on Y5 (priced @7.5 cap) to give IRR at ~35%

Seems like a great deal if my pro-forma assumptions hold. Here's a couple questions:

1. A local lender (top 5 largest credit union in the US and locally based) I've been working with said that they consider .33-.39 exp/gross inc to be "conservative." This seems way too low from what I've read on BP and the building's age, but how much should I trust their teams/local knowledge? (not like it really matters if the deal still works at the more conservative estimate--hah)

2. A requirement from one bank is that the guarantor (myself) needs to have a net worth equal to the loan amount and liquid assets equal to the 9-months of P&L expenses. I easily cover the latter, but don't [yet] have >$1mil net worth. I really don't want to ask one of the other investors to give recourse. Is this a common requirement or should I keep shopping? 

3. Deal structure: I'm planning to give all investors a 10% IRR preferred hurdle (before I get paid as the manager for finding/structuring the deal). Anything above 10% would be split 80/20 in their favor. I'm not going to be charging any finder's fee/acquisition fee and I will be covering LLC formation/attorney costs. I will also (hopefully) be the only one giving recourse. It pencils out to 30.57% investor level IRR with a 3.27 5 year multiple. Does this seem like a fair deal (assuming I'm the only one giving recourse)?

Thanks and I'll post updates as the deal progresses!