Multi-Family PPM For Short Term Value-Add Property

[Travis Kramer]

I have completed multiple renovations on large multifamily, hospitality, and senior living properties for national and multi-national companies for a little over 7 years now. We complete small capital improvements up to entire renovations of the exteriors of buildings, interiors of units and common areas. What I have seen in the last few years has helped me gain an understanding on some of the miscalculated decisions that some of the owners, ownership representatives, project managers, general managers, etc. are making when they approach a complete property renovation. Because we are working for some of the largest ownership groups and publicly traded companies in the country, I know that these decisions are approved by a diverse group of minds. That has led me to believe that even though they are essentially leaving a hefty margin on the table, they are still meeting or exceeding the required ROI required to complete large-scale renovations.

Over the past decade, I have myself invested in multiple single-family homes but knew after the first few multifamily renovations that I would be heading in that direction. After searching for some time I have finally partnered myself with someone who is highly intellectual, has a brilliant financial acumen and a background that includes ground up construction of large multi-family and commercial building structures. Over the past year we have focused our vision and have slowly started to implement our plan.

We are currently working with our attorney on our 1st PPM to deliver to investors in the next 30 days. We will be developing our offering under rule 505 Regulation D and searching for properties in the 5MM to 12MM range or a combination of multiple properties to reach that range. We will be looking to purchase a value-add C+ to B property, renovate it to a B- to B+ property, and immediately put it back on the market for an immediate return of capitol to our equity partners. Our intention is to use this model for a few properties and eventually work in long-term holds into our portfolio, as investors grow more comfortable with our management and results. We will primarily focus close to home in the mid-west for the short term but venture outside the regional market over time. The biggest obstacle I believe we will face after having a few meetings with a developer and our attorney (with a past life in private equity) will be securing investors. The second hurdle for us is our understanding of how existing properties are valued for purchase. We have developed an extensive NPV calculator based on purchase/sale prices, income streams, CapEx, capital structures, and tax law variables among others. Before we start making purchase and sale decisions based on this methodology we would like to ask someone in the industry to help solidify our knowledge of what goes into property valuations (purchase, financing, and sale) and any insight into the commercial mortgage process that will lessen our learning curve and increase the accuracy of our NPV calculations. Recent local sales as well as recent regional sales have been baffling to us. Almost every property seems to be highly overvalued and overpriced but most are selling in record time.

As with any presenter, we will need prepared as possible before we begin courting potential investors. We understand opportunity to interact with one will most likely only materialize one time. If anyone could assist us with locating investors, valuation and acquisition of multifamily properties we would greatly appreciate any guidance and mentoring. 

[Jeff Greenberg]

@Travis Kramer Let me start with a correction.

Rule 505[edit]

On October 26, 2016, the Commission repealed Rule 505.[4] It previously provided an exemption for offers and sales of securities totaling up to $5 million in any 12-month period. Under this exemption, securities could be sold to an unlimited number of "accredited investors" and up to 35 "unaccredited investors".[5]

The Rule 505 exemption was phased out and its provisions integrated into the Rule 504 exemption. Rule 504's capital limit increased to $5 million and Rule 505's "Bad Actor" provision was added to Rule 504.[6][7

I am guessing that you meant a 506b or 506c offering.

The three big challenges of a MF syndicator are finding the deal, finding the equity partners, and getting the debt.  Because of your and your partners background, you have a great start at the credibility to find the investors.  You need to put yourself into situations where you are able to mingle with potential high net worth individuals.  Tell everyone you talk to what you are doing and how your background and experience will be brought into play.  You can advertise if you do a 506c offering, but without a syndication track record, it may be more difficult.

In most market MF prices and seller expectations are very high.  The cap rates are compressed and good deals are hard to come by.  Because of the difficulty in getting the good deals with any consistency, I have passed on the idea of a fund , at this point in time.  I wouldn't want to feel any pressure to do lessor deals because I had money that needed to be moved.

There are many books out that can help with the valuation part.  Look at Dave Lindahl's Multifamily Millions to get you started.  The key to value add is similar to a fix and flip.  Look at your after repair value- renovation costs-profit you want=what you can pay.  The nice thing about commercial, if you have the noi and the market cap, you can calculate the value.  I know that this is all very simplified, but books have been written on this topic.