All Forum Posts by: Account Closed

Base rate for large commercial deals is usually 4-6% on new leases and 1% for renewals but these terms are highly negotiable. 

I  personally never agree on paying a commission on renewals. 

Also given the current circumstances and uncertainty i certainly wouldn't agree to pay a leasing commission upfront

Finally, unless the broker provides massive value and not just put a listing on loopnet like 99% of them do, there is no way i'm going to pay 4-6% of EGI unless the brokers brings a AAA national tenant

Yes but even with the most favorable tax treaties like with Germany, i find the tax burden still uncompetitive compared to a local investment. Also, with about 14% total annual returns, i believe us stocks and reits have delivered better tax treatments and better risk adjusted returns for the past 10 years than remote direct re investments which carry high execution risks, poor diversification and liquidity. 

As others have said, the 5% fee on committed equity is a deal breaker and the equity split looks a bit rich. The rest is fine. 

I see a lot of people getting emotional here with the fees, but the main concern is alignment and the bottom line not how many % this or this fee is. I would worry if the syndicator doesn't take fees. 

Why would a sponsor accept to work his *** off for free? Money is dirt cheap right now with lots of  investors chasing too little deals even with the coronavirus slamming the economy

Also why for example would you be fine with seeing a broker taking 3% on a 20m deal with zero risk and then whine about the sponsor's 1-2% acquisition / disposition fee?

If 'im going to source competitive debt, supervise redevelopment, strike deals with credit tenants, etc i'm looking forward to get paid for that work like any third party broker / manager would

Actually American investors are extremely active abroad, especially in Germany where they account for a very significant volume of CRE transactions.

Direct real estate as a passive investment is essentially a tax play and a foreigner won't be eligible to benefit from the incentives and estate planning options available to the US residents that make it worth it. Direct investments in the US re by foreigners is essentially worthwhile for large investment firms and high net worth individuals who have the resources to setup complex tax schemes. For the average foreign investor REITS are generally better choices for tax consideration.

Also, it’s worth noting that a non resident alien

• - will be subject to double taxation in his country of residence on US income if no tax treaty in place, and if a treaty exists will generally have to pay taxes at home minus taxes paid in the us without being able to apply the exemptions he could have enjoyed owning re in his own country.
• - will be subject to a 40% estate tax with an exemption of 60k$ only vs 5million for an American citizen
• - generally won't be able to secure debt at an attractive rate and LTV like a local entity with credit history would

Unless the investment is part of a relocation initiative to obtain residency I believe foreigners are generally better off investing where they live

The biggest mistake people make in every recession is to think that “this time it’s different”.

Covid or not, those who believed this economy could have rallied to the moon for another decade are absolute fools.

The economy was stretched to the maximum on every metric and everyone on Wall Street knew it was coming.

The triggers of a recession are irrelevant because the financial cycles are the product of mass human psychology; a self realizing prophecy based the belief of patterns and that what happened in the past repeats itself. It’s pretty clear now where we are standing in that cycle.

After that bull trap / dead cat bounce phase, we will very likely have a massive market capitulation (prob end of summer / year) and a slow recovery over at least 3 years

What kind of projects do you do? hotel and MF value add? 

Impressive, i'd be interested in knowing in more details what kind of $50 million projects consistently land you a +30%LIRR

I find IRR mostly IRRelevant if all the metrics such as leverage, rent growth, cap rate expansion/compression assumptions, are unknown, especially at this point in the cycle. Too many ways to manipulate the numbers. Most GPs out there model irrealistic rent growth and cap rate compressions to make the numbers work

What kind of returns are you currently seeing in your market for multifamily and industrial value add and development deals?

What are your current underwriting assumptions and thresholds?

Assume a project cost in the 10-50mm range in gateway / primary markets

90/10 deal

I currently use the following UW Assumptions:

cap rate expansion: 5-10 bps per year

rent growth: 2-2.5% annual

Product type:                      mid rise affordable MF spec development

Term:                                 3 yrs hold

YOC:                                   6-7%

Trended ROC/spread:          150 bps > exit cap

LIRR:                                   16-17%

EM:                                      2x

LTC:                                    65%

LPs pref:                              9%

Waterfall:                            80/20 to 13%

                                           70/30 to 18%

                                           65/35 thereafter

Look forward to what others have to say

@David Friedman

I hope it won’t happen again but San Bernardino, riverside, Bakersfield etc typically are where investors pushed away from high priced la primary markets purchase properties at the end of the cycle.

These places are always the hardest hit by recessions with massive unemployment and foreclosure rates

I would only invest in secondary markets, but not in CA. Out of state, in nonvolatile locations that actually cash flow. We could scream "don't invest in CA until a crash comes" from the rooftops all day but people are still going to do it. Fine by me, I'll buy their properties back from them at a 40% discount next cycle. 

I wouldn't buy anything too.We personnaly don't buy land anymore and only jv with land owner as developers on affordable housing projects with minimum exposure now. Most developers i know are finishing building over land they bought in 2010-2013; We cashed our chips last year and won't invest in the us market until the prices return to the mean