All Forum Posts by: Joel Owens

Since the syndicator is likely under water are they giving away their pref or return of the fees they made in exchange for a capital call for a potential sinking ship?

It seems that if the LP investors are asked to do more to save a project then the syndicator should give up their benefits and use it as a learning experience.

People need to remember short term floating debt or fixed for low years is not good in most cases. If debt has to be ran and re-ran multiple times and tweaked with number projections to work going in that is a time bomb and recipe for disaster in the future. 

My accredited investors like higher yields of course BUT ONLY when downside protection is factored in.

I have found the newly accredited investors not always but many times to be unreasonable. The ones that make 200k or under a year and want that 300k invested to do miracles or magic. When they do not find that with me or other realistic syndicators they get sucked into they must have landed the one company that has the magic pill (returns) they are looking for. Often what they get is marketing that looks like a diamond but performs like a lump of coal.

I like the accredited investors that make many millions a year from their job or business. Investing larger amounts is fine with them and they put more emphasis on experience of the syndicator over a higher return for cash flow because they already make tons of cash annually. What they are interested in is lower risk investments with safer yields that that hopefully outpace inflation and if get lucky also have some equity growth.

I feel for these investors. When I sold multifamily as a broker decades ago I saw the cycles. It was like a game of musical chairs.

I knew many years ago when everyone and their brother was buying multifamily saying you can't lose it was residential 2.0 selling the story from single family to multifamily. I don't care what anyone says you can lose your *** with any asset class if you do not buy right yourself or invest with the proper syndicator who understands this.

You have to be careful with multifamily syndicators now showing past performance like the new property will perform as good or better than the last one in record time etc.

Some syndicators craft the offerings in a way that mind screws the investors ( talking in generalities only not specific companies) that hypes them up for the buy in. Yes they typically do more deals but the syndicator loses their soul in the name of making money fast without thought to who gets hurt financially along the way.

Again I love buying all cash. I am not a slave to a lender or the financial markets as to what will happen next.

WHY do syndicators take on tons of debt and leverage high then? It's often the only way they can pump the expected pref cash on cash projections to investors and make the numbers work. If they paid all cash the could not typically pay the pref accredited investors are demanding to do a deal.

They make big fees also on a larger property going in. They can charge bigger asset management expense fee based on higher numbers. They can raise less capital by leveraging debt.

Example if their LP investor capital base is 100 million to invest as a cap then they could buy 1- 100 million multifamily all cash or 3 to 4 projects for 300 to 350 million as an example. They make more fees with the bigger numbers.

When I syndicate I ask what is best for their needs?

My net worth might not be what some of these syndicators are but I go to sleep very well at night.

I have been saying it for decades. Leave credit cards at home in the freezer in a bag filled with water that has frozen over....lol

Amazes me how many people fall for these types of programs.

When I buy NNN properties either my buyers wanting to own direct and I find the property or whether they are accredited LP investor on my syndication deals they learn with me while they INVEST CAPITAL to own fully themselves or a piece of the deal.

I don't have functions where people go to a low or no fee seminar making wild claims and trying to suck them out of 40,000 or more ( talking in generalities not a specific company ). Real estate investors decades in the business know even if you gave someone the best systems and knowledge out there only a few percent will really do anything with it.

WHY is that? It's because typically people say they want financial freedom but are looking for an easy button where they do minimal work and all this success happens in their life. I did that in my teens in age and early twenties hopping to the next greatest thing that would appear to make you richer faster and with less work. I found out that was all smoke and mirrors. The answer is you have to really enjoy what you do as the long days won't be work you can't bare to do. It will be work doing something you believe in with odds of success with the outcome.

Any avenue takes work because the top 10% in any field that are very good at what they do tend to make the most money. Most fields to become world class at something take 5 to 10 years of consistent work and improvement on a daily basis.

Today about 21 years in with commercial real estate I have tons of business and also properties I can purchase. You do that with skill, time, and reputation. Everyone has to start somewhere just understand it will be very hard but if you never give up and take things slow to really analyze everything you put more chances of success in your favor.

When people make their first million they tend to be the most vulnerable to the con artists out there. There is a group of rip off people looking at newly minted millionaires to drain them dry. They know people like me and other millionaires for along time will tell them to go f*ck themselves so they do not even contact or try.

Successful people don't have time to mentor people for 1,000 bucks. My time is worth 3,000 an hour minimum. Someone paying 1,000 likely wants 100 hours of time as they will struggle with lots of stuff and blame someone other than themselves when they don't follow all the steps because they are lazy or don't want to put in the steps to lay the foundation.

The foundation isn't sexy. It's just like a constructing a new building it's all the boring stuff not much to look at and seems to take forever. The finished product and getting the rewards from the fruit of the labor is way down the line. If you do not take time with the foundation as the building gets close to completion it will all fall apart or not work like you need and then it was all for nothing being impatient and taking shortcuts.

People learn from me but it's as buyers. Example someone has 2 million down payment they buy something NNN at 5 million and I make 150,000 in about 60 days for about 20 hours of time depending on how complex the deal is.

I am just tired of newbies being told bullsh*t. When you start out you need to come from a place of reality not someone blowing smoke up your as%. People selling courses often use newbies as ants so they save time in the case that the ant finds one deal out of 10,000 the course creator can partner with them on. Then they take that 1 in 10,000 deal and plaster marketing all over the place making it look easy like everyone that buys into the course can do it to. The people trying to sell a 40k course likely told it's easy sign people up for it and you get a cut etc. and make big money. Those people tend to learn the newbies want the world and complain they are not directly talking to the big guy or gal and the salespeople for the course leave and say it's too hard or not what they thought. 

The masses are like people all hoarded together walking in circles with blinders on when their eyes open occasionally when they think they find the one thing to get them too easy street. Then their eyes close and the ramble aimless for awhile before they do it again and have no positive traction anywhere.

There is NO easy street it's a MYTH. It's what marketers sell because it's what people without money want to BELIEVE. Once you have lots of money you have to manage the money and keep it growing. That takes ongoing planning year round. Stress just moves from one thing to another. Money can help free you some to work on your life's purpose and amplify what you believe in and help make you more fulfilled on a daily basis but doesn't solve everything. I have been poor very poor living off food banks and pawning items just to eat for a day and do it again. I have had clothes with holes in them going to work when I had a job because I didn't have money for food not alone 10 dollars for more pants back then.

I went out to Barnes and Noble bookstore and started reading in the store. Would read 3 to 4 books a day. If one I had to read slowly as every page was amazing I would take my only 7 dollars and buy it. When you are poor you have time but no money between working. When you are very wealthy you have lots of money but not ENOUGH TIME. Time becomes most valuable as money scales and grows. You will only be that years in your life ONCE. You can't buy that back. Smart people understand that in life. Making memories with family and friends for pictures and videos become what is most treasured as people get older and more life experience. It's still fun to hunt for a deal but the money high isn't the same as when you made your first 100k or your first million. 

Hope this helps people. Before you start commit to a 10 year journey or hard work at a MINIMUM. Only have plan A. If you have a plan A and a plan B going in you are setting yourself up to fail right away because you have told your minds already it won't work so you won't put your all into plan A. For me there was no going back I had to make it work at all costs and never gave up. The rest is history and a story of success people find inspiring but hard to believe.

Good luck      

Interest rates are in the 6's right now so that heavily affects any new calculations for DSCR than when you bought the property.

A hope would be that as your loan comes do and gets closer hopefully interest rates fall some making potential extra payment less required from lender.  

Maya in NNN single tenant there is the loan you got when you bought the property. At that time the lender gave you a fixed loan for a certain period of time with so much down and a certain amortization schedule.

The debt service coverage ratio example.

At DSCR of 1.25 means for every dollar of mortgage payment the NOI can cover 125%

Your current lender back in the day might have done say for example a 1.10 DSCR ratio because absolute NNN and investment grade so perceived risk to them was low. Your bank today on the loan might have sold the loan to someone else, kept the loan and the bank was bought out by other bank, not loan as much on commercial real estate anymore, etc. Tons of things can change a banks trajectory for what they do reupping a loan.

Your loan balance is different now, the years left on primary lease are different.

The bank might say to do a new loan you need DSCR of 1.25 now instead of 1.10 for example. With loan extension you might have to come up with extra payment to get DSCR in range lender will approve.

That is why to go through this exercise NOW and if you know tenant wants 300k TI to extend and bank wants 300k to pay down estimated balance when new loan placed you need 600k to come up with. So if loan due in say 3 years you would need to create 600k in 3 years or sell the property.

With limited years left on lease for primary you would need to start saving big chunks of money now because buyer will want higher cap rate to purchase. Extending lease might be best bet. 

What I have been seeing by various syndication companies.

1. Start a new fund

2. Change their name all together like it never existed

3. Buy new properties in existing funds while trying to sell off the dogs or get the fleas off the dogs.

4. Go dabble in other asset classes they know almost NOTHING about to then blend a portfolio to entice investment.

Personally if I lost that kind of money for investors I would not be able to sleep at night. As a commercial broker also talking with thousands of millionaires over the decades in this business I know having wealth myself coming from nothing how hard earned those dollars are. Sometimes it's not just the current person that earned them but a family legacy built on decades or hundreds of years of time and sacrifice. I make it a personal challenge not to lose even 1 dollar of a syndication  investment and make every deal profitable. I don't really believe in waterfalls and all these complex metrics to do a deal. I like VANILLA syndications easy to understand the investment and what is being distributed and when.

Our syndication structure for value add single tenant NNN is typically we buy all cash. We are currently buying blend and extends with tenants having low years remaining on the guaranteed primary lease term.

Closed on one last month at 11 cap rate. Closing another this month at 11.75 cap rate. Closing another end of January at 10.7 cap rate. The goal between the existing cash flow and the estimated equity upside on the lease renewal to hit 2X total multiple to LP's in 3 years or under time. We typically do 8% pref starting out day 1 and split of cash flow thereafter 50/50 between LP and GP or we as GP charge 10% management fee of NOI it just depends on the deal. We tend to split equity upside 50/50 between LP and GP. Our minimum per deal is currently 200k but fixing to go to 300k due to investment demand.

I have been looking at lots of new offerings from multifamily syndicators and they throw big flyer saying all these returns and then you look into the pitch deck and it makes no sense to me. The LP investors think they must be missing some key item looking at all of the numbers so invest anyways. It boggles my mind.

Sorry John Teachout for your expected loss hopefully it doesn't happen. 

If the location is an A but the tenant paying higher rent was a B or a C then replacing the location with an A tenant at slightly less rent in some cases you can actually increase the value.

Example if you had an (A) location QSR but tenant was Burger King franchisee and they went out the Burger King might sell at 7 cap. If Chick Fil A wanted to go on the site but pay 6k less a year those usually sell for 4 CAPS. So even though rent went down value went up with more desirable tenant. 

If location is strong and you can't replacement the rent dollar for dollar then replace to a better tenant and lease term to hold the dollar or increase the equity dollar value overall. 

I know this property. The rent is not super high.  The tenant is not going to extend early out of the kindness of their heart.

The existing lender knows the borrower and knows the tenant well. They are likely best shot at getting the loan re-upped. Plan out what you think your loan balance will be at the end of the loan period and calculate a new interest rate versus the old to see what DSCR ratio will be. See if you need to save up some money for the lease extension and any mortgage paydown to lower LTV and start saving now. 15 year primary term lease can be way more valuable. Reason is if you hold for 3 to 5 years before selling you still have 10 to 12 year primary ease for your buyer on exit to get best rates and term. That can help you sell for lower cap rate.

I buy blend and extends for cash nationally where I can extend the lease or backfill.

I buy at 10 cap rate or higher. I don't touch 8 caps with low years remaining on the lease.