$46M in Arizona Multifamily closed in last 60 days

[Serge S.]

Greetings BP, its been a while and I wanted to post a brief update of our deal flow in the last 60 days:

1. Metro PHX - 168 unit mid 80s and late 90s former Marriot Residence Inn, off market deal purchased from Covid distressed seller. Purchased at $15.75M, unit mix is split between 2bd/1bd/studio all fully furnished with a $25k/door Marriott PIP less than 24 months ago. Fully converted to multifamily and currently running it as a hybrid. Property was empty at purchase in early December 2020 and as of of Feb 1 is 94% occupied and generated $290k in cash reciepts in January 2021. I underwrote this project to a year 1 $1.25M NOI and its looking like this will be closer to a $2M NOI.

2. Metro Tucson - 135 unit late 70s multifamily in an ideal Tucson location on Broadway. Off market deal through seller/broker relationship. Fantastic unit mix including nearly half 2/2. This complex had no RUBS in place and average rents at least $200 below market and produced a $500k NOI at time of purchase for $10.8M. Planned capex will include an exterior refresh and bringing rents to market. This will be an $900k year 2 NOI with minimal heavy lifting.

3. Metro Tucson - 236 unit 1980s in fantastic Catalina Mtn location, walking distance to the best retail in Tuc. Another off market deal purchased for $19M with nearly $1M NOI in place. Rents no less than $200 below market with no RUBS in place. This will be a year 2 $1.5M NOI.

All deals were done with local portfolio lenders at terms equivalent to Fannie but without any prepayment penalties. 

Any questions, please post ...

[Serge S.]

@Jai Reddy and @Carlos Gonzalez my story is out there, check out the 2-3 BP Podcasts and various other podcasts out there.

In short I started in 2008 with Arizona SFRs, grew that business through the great recession and then slowly sold out of SFR and into small multifamily in secondary markets. I was a 28 yo with a $30k loan from family used to buy a $50k SFR as my first deal. Every SFR I purchased cleared out my account to close to 0. I drove the city buying used appliances and materials on Craigslist. I used cheap, unqualified and unlicensed contractors. I deferred all major personal spending and drove an old Chevy Truck so that every dime earned at my day job could go to buying undervalued RE all around me. I chose risky projects with very high cash on cash returns and held until they were stable and attractive for the next buyer. I sold out of those slowly and into larger multifamily, also in secondary, unknown and risky/cyclical markets. Once those were stabilized and the multifamily market fully recovered, I was able to sell out of the secondary markets (at primary market prices) and move back into primary growth markets with large multifamily as the vehicle of choice. Primary lessons learned along the way:

1. Do something that others are not doing. Pick a niche that you can dominate and specialize in a way that builds barriers to entry. 

2. Only pick the very best projects. Real Estate is not for fun or vanity unless you happen to be a Russian Oligarch. 

3. Never stop learning. Never get set in your ways. Be ready to cross asset classes and borders. Once educated enough to be dangerous, listen to everyone but trust yourself. Second guessers don't last long in RE. 

4. Understand market/asset class cycles like your life depends on it. Specifically, understand the business cycle in your specific state/city. News, politics, tax policy all matter. Be a real estate historian, history repeats itself as do cycles. 

5. Get in front of the cycle and the long term trends. Learn how relevant statistics today drive future results tomorrow. 

6. Just do it! Some of my worst RE projects led to some of the best relationships and lessons learned. Knowledge is worth so much more than money, never forget it. 

7. Never stop networking. Value and respect everyone's opinion. Nobody is your "competition", this is a land of plenty and there is enough gravy for everyone. Be happy for other's success, show gratitude and respect and don't forget that nobody owes you anything. Most people are just one connection away from success. Keep looking for that connection and if you don't find it then be that connection for someone else. 

8. Bigger is better. This is simple fact you hear again and again. The point is not to skip the small stuff along the way, its to keep your eyes on the prize. The smaller, self managed RE should be seen as a conduit to the larger more passive assets. I learned the hard way that a portfolio of small assets is not sustainable or profitable in the long run. 

9. Be a long term thinker. What will your prospective asset look like next year? What will your tenant class be in 3 years? Who will want to buy your complex in 5 years and why?