How to buy big multifamily properties

Question

I have this issue I have lots of buyers for 10M+ apartment complexes in my area and we have only 1 20+ unit property for sale in the southern half of the county. It got over 10 offers in the first few days. This has forced me to try and source off market deals for my clients I have convinced a few apartment owners to sell but they only want to sell conditional on 1031 exchanging into a new multifamily. The problem is there is nothing for them to 1031 into. I really don’t know what to do other than keep marketing for off market deals. Anyone have any advice on how I should proceed?

Brian Ploszay · Answer

I used to live in Isla Vista.  Santa Barbara County somewhat restricts growth, so there is a shortage of real estate.  It is very expensive to live there, especially for working class people.  Anyway, there is a finite number of apartment deals in the 10 million range in your county.  And they are priced very aggressively.  You probably databased them already.  So you are stuck with the investment broker's dilemma of having clients but not enough inventory.

This is not like residential brokerage.  Most of those buyers are not going to result in a sale for you; They are just a database of potential buyers.  Perhaps try to see if you can show them properties in other parts of the State.  In your market, you probably are better off trying to get listings - therefore you can better control your opportunities and inventory.

Storm S. · Answer

@Anthony Dooley the problem is not getting people to say yes the problem is getting someone to say yes who wants out of real estate and are willing to accept a large capital gains tax and depreciation recapture from prior exchanges on a 10+ million dollar property. Every seller who has said yes to me has wanted to roll over there money into another property to avoid these taxes or cash out via refinancing. I figure my best bet will be working with REITs who are recycling their capital into new projects elsewhere.

Anthony Dooley · Answer

@Storm S. if you send offers to enough owners that are off the market, at some point you will get a yes, or at least a counter offer.

Storm S. · Answer

@Anthony Dooley I agree with you on that in general the commission lowers the higher the price goes. Last year some agent sold a luxury house via auction it sold for 10 million and the house had a 10% listing commission. I don’t think I’ll ever see some pulling that off again any time soon. I’m actually partnered with the buyers agent working on finding investment deals. My brokerage also buys investments so I have the ability to make cash offers for us on the lower priced apartments and offer sellers to use our contractors at our preferred rate if they need to rehab before they sell, we get this low pricing because we do a lot of flips every year. Breaking into commercial sure is tough almost all of the sales for commercial agents around here are repeat clients and or word of mouth referrals

Robert C. · Answer

@Storm S., I'm not a broker, but as a buyer in the Bay Area, I think the answer to your question is all about networking. You're not going to be able to change the market, so you are right - most multifamily deals are sold off market, and that's where you need to be to become successful. I agree with the poster who mentioned starting with a commercial brokerage firm. It's an "ol' boys"/ wall street-esque community that controls the MF market in California. In fact, I suspect they are responsible for a good portion of the rent/value increases we've seen over the past decade, since nothing really hits the public market.

From what I've seen, the successful young commercial brokers partnered with seasoned realtors back in 2007/2008, and utilized their partner's existing network and knowledge to allow them to launch like a rocket ship after the crash. Since then, a large portion of their business is essentially trading and re-trading the same product between buyers, with the occasional MF that comes onto the market due to inheritance or retirement.

Anyway, to me that's the easiest way in. If you are trying to do it all independently, you're going to hit another wall, which is convincing owners to work with you. They are also tied into this network of brokers, so they are not going to just abandon ship with people they have relationships with, unless you can prove you have the ability to move them out of their existing investment into something better.

Anthony Dooley · Answer

@Storm S. All of us know somebody that did something extraordinary once. A billion dollar deal is a once in a lifetime thing, if ever. Multimillion dollar commercial deals get 1% commission, not 6%. My point is that if skyscrapers is your niche of choice, don't expect to close many deals. They don't change hands very often, and as you said, they frequently do it off market. They already know who their buyer is before they decide to sell.

Syed H. · Answer

Who do you work for?

Commercial Investment sales is a whole different world. It is very different from being a regular realtor.It's not just calling them up and building relationships.

Being with the right company does matter. Certain owners will never hire you because they can't. They need a brand name to give to their board. You will be dealing with massive companies, institutional investors, and extremely wealthy families. The middle market $5-$50m has mom & pops as well, but they get hounded every day on the phone.

Syed H. · Answer

it wasn't that much. Usually, we got capped on transaction after a certain amount (highest would be a few million usually).

Brian Ploszay · Answer

In a hot class of properties, I agree you'll find many sellers interested in selling at the "right number."

Overpriced properties take you nowhere.

Storm S. · Answer

@Anthony Dooley I wanted to get into brokering skyscrapers like the Morgan Stanley building in Oxnard, CA I got ahold of the owner but they aren’t interested in selling.

How to buy big multifamily properties

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