Evaluation of Multifamily Foreclosure

[Rand Linton]

Total newbie here. I've been looking at a multifamily complex that has been foreclosed upon. I am aware that multifamily properties are purchased based on NOI and the applicable cap rate for the market. The information provided to me by the listing broker indicates that for the prior 12 months, the NOI is negative to the tune of several hundred thousand dollars. However, when taking the most recent month's performance and annualizing it, the NOI then becomes positive by several hundred thousand dollars.

My question is how do I properly evaluate this property? Several of the units have recently been renovated (according to the listing broker). The capital expenditures and repairs/maintenance figures are high for the trailing 12 months, so I suspect the broker would argue that the reason for the negative NOI is due to recent renovations. Any and all thoughts on how I should go about evaluating this property would be greatly appreciated.

[Joel Owens]

1. How many units is it??

2. What are the current rents on the rent roll??

3. How long has the bank owned it?? Is the bank local, regional, or national in nature??

4. When was it built??

5. Is this complex just as a rental only or is the units part of a bigger development or a fractured condo conversion?? This will make a difference as the exit strategies and timing.

6. Are you paying all cash, using a regular loan, a HML lender, or a private lender??

With large complexes you have a breakeven occupancy level in relation to costs. Anything about that starts becoming more profit. Same thing with businesses in that they have fixed costs that pretty much stay the same but above a certain level you just have a little more costs and the rest is profit.

I would have to know much more than what you have posted to give an opinion on it. If you do not want to put it here you can contact me directly to look over.