All Forum Posts by: Brian S.

Does anyone have any recommendations?

We're searching for a new HVAC contractor looking for steady workflow in Baltimore. We have ~120 apartment units and a dozen or so houses/row homes with central air in the city. Typical stuff like recharging, replacing fan motors, replacing compressors, occasionally replacing an entire unit.

Thanks for the help

Micro, and our recent appraisal of the building aligns on the higher end of that rate.

Regardless, this thread seems to have veered off track. The selling of the place isn't happening for any time in the near future. I've walked a few potential buyers through but after confirming the non-recourse, no guarantee, no clause thing we've decided to modify instead. From sitting on conference calls with the lender and my initial contact with them, it is apparent that we are in control of what happens. We own a mid-size law firm as well btw, which has confirmed the liability situation past my own research.

Either way, do any alternatives exist to selling or refinancing as an exit strategy? Payoff isn't realistic.

- We've had breakage issues with the non-student local market and the units in the building don't have much appeal to families or older renters due to the way things were built. Effective gross income has dropped by $40k from 2007

- We've been paying the balance down for years already. The way the mortgage is structured creates a problem with gearing things for a faster amortization reduce the balloon. With a fixed monthly payment amount and fixed rate debt service would be the same annual amount regardless of rate, but the P&I distribution changes with rate. The faster it amortizes, the lower the after tax cash flows (the partners have income free to be written off). So simply getting a principal reduction or lowering the rate would in reality result in no change in before tax cash flows prior to the balloon but decrease the after tax cash flows (by a few hundred thousand over 6 years). The monthly payments wouldn't change, just the distribution of them, and reducing our after tax cash flows isn't a sustainable route. There's too much involved to be typed out here, but I've done all the math and already know what will maximize before and after tax returns prior to the ballon, it's just risk adjustment that I'm still working on

- We had a couple potential buyers look at it for the appraisal price even though it wasn't actually listed, so there's some interest/it's not a complete loss

Yeah, don't know how I forgot to initially include this tidbit of info. The commitment letter actually noted that the lending institution could require personal guarantees for 25% of the original principal at their discretion... but they opted against it for some reason. I've triple checked on this stuff. The ball is really in our court for this.

This is under a separate single asset holding partnership with only our managing partners and a couple of their family members having stakes in the deal

Coming up on a century

I should have been a little more specific on these 'renovations', the units on bottom half of the building were renovated with new wood flooring and central air was added. The other half has older hardwood that is still in good shape and no central air. That's basically it.

Little excess land (on a city block) to be had, it could be torn down to build up something bigger but that doesn't seem like a realistic option as a larger building on the same block is for sale and this building is in decent condition.

According to the CBRE cap rate survey from last month the applicable market cap would be ~3%-7.25% (probably on the higher end), but this is obviously going to be different in a few years

Thank you for the help/responses by the way, I really appreciate it.

I needed to head out of the office after that first post, sorry for the lagged response time.

- effectively grosses ~$300k/yr (potential at current rates is 6-7% higher)
- regional bank
- non-recourse
- no personal guarantees, cross collateralization, or unfavorable clauses
- There is a decent amount of upside for rents, noted separately by our broker friend and the appraiser. There are multiple instances of identical units being rented at different rates too.

I didn't have any involvement, or was even with the fund, around the time of acquistion. I realize it's over leveraged. I've been handed this mess to attempt to clean up.

Could someone help me kick around some ideas for exit strategy development? After talking to our lender about a loan mod they've requested that we submit a package covering what's going on, how we want the loan to be modified, and our proposed exit strategy.

General info:
- 30 some unit mfd in a somewhat major metro acquired in the mid 2000's
- Around $2.5mm remaining balance of debt, 10yr ~5.5% balloon which comes due in a few years with a ~$2.2M balloon payment
- Has performed around breakeven on a before tax cash flow basis overall, the last two years have been a little negative.
- In decent physical condition, we renovated half the building after purchase
- Near full occupancy
- It was set up to cater to local college students (2 schools in walking distance that don't provide housing), pre-recession it was near full student tenants but it fell off a cliff and is now ~1/2 students.
- We expect the student population to rebound in the coming years, the schools have launched plans that include large increases in enrollment. Independent and state projection studies see 300-400 additional students per year through 2020.
- Recently appraised ~$2.1M

I've got the numbers figured out on how to optimize returns both before and after tax based on the structure of the mortgage, but in doing so it assumes we'll be able to sell the property. One of the mod features will be a term extension pushing the balloon back 8-10 years from now

Exit strategy ideas I've been thinking through:
- Rent then sell prior to balloon
*have modified so balloon is around $2.0-2.1M
* general upkeep of common areas done -> school enrollment higher -> more student tenants again -> rent raises over time -> increased value to sell for

- Refinance prior to balloon
this also assumes an increase in value (which from market research and lots of knowledge about the building i believe will actually happen)

Any thoughts? don't know how strong it is to present these options to them (director of portfolio management) with both exit strategies assuming an increase in value

*update*

Would someone please re-upload Phil's model v7? The download link through his profile/the resource section isn't working - http://www.biggerpockets.com/files/112/download

First I'd like to thank you for your concise and extremely helpful response, and also wish you a happy new year.

I realized it wasn't an actual IRR, and this was what I was thinking, I just didn't know how to describe it and with mirr being a defined metric I decided to go with 'hybrid'.

This is my first post here after reading for some time. I a have a few somewhat specific questions regarding analyzing the performance of currently owned properties that range from 90+ unit complexes to 5-6 unit mfd's I'm hoping someone can assist me with:

1. If I wanted to calculate a hybrid what-if internal rate of return for a currently owned property that has a balloon mortgage maturing in the next 4-5 years would it be appropriate to set up a model to do the following:

- Utilize actual/realized cash flows from the time of purchase to present. Should these prior cash flows be left as-is or discounted to the acquisition year? I'm thinking left as-is as they've already been realized.

- Factor in actual gains/losses on re-investments of past positive cash flows while projecting/discounting the future cash flows of those already held reinvestments (let's assume they're reinvested in fixed % cd's or savings accounts for simplicity).

- Projects future cash flows for the remaining term based on historical data/performance expectations, discounting these projected cash flows to the present day rather than the acquisition year (or am I wrong? If these were discounted to the acquisition year I assume the past cash flows would need to be as well). Future excess cash flows would be reinvested in the same reinvestment assets as previously, then discounted to the present day.

- Project various terminal year cash flows based on various potential sales prices to set up a "if the property sells for ___, then we'll return ___ " type of situation / table.

Would this be appropriate / logical?