All Forum Posts by: Christopher Cruz

Why wouldn't I...?

Hi All - I don't normally look at small multifamily properties but an off-market portfolio of 51 apartments split between 16 buildings crossed my desk recently. Predominantly S8 vouchered tenants in an urban market near NYC. Unlevered yield looks solid even after stressing this thing up and down with on-going cap-ex, replacement reserves and r&m. I realize there are a lot of investors on this forum that focus solely on these types of properties so I've come to hear some first hand accounts on managing a larger portfolio of tiny buildings.

With that being said, have any of you worked with third-party property mgmt firms that focus on these types of properties/portfolios? What has your experience been like? Is it wishful thinking to believe that my partner and I can get this portfolio to be near-passive from a PM/administrative perspective? Obviously AM work will be on us. Just the thought of legal structure and accounting makes me want to pass on this, i.e 16 SPEs, 16 K-1s.

Appreciate the discussion. Thank you.

@Jose Ramery you can use the license to your advantage to negotiate both on the buying and selling side. If you don't have the means or time to properly market the deal you are selling, you can bring in another broker to do all the work and 'split' commission. Pay out the broker, don't charge yourselves. If you are putting in the time, resources and effort to properly market the deal then you should get paid for your work (although maybe at a discount to partnership or w.e you agree upon). 

Same could be done on the buy side if you were to negotiate split for bringing in the investors and capitalize it into the deal via purchase price discount. 

@Brandon Hall would be able to answer questions about tax efficiency, but I would think lack of tax event would be more efficient.

@Jose Ramery What kind of partnership is this (ownership, limited partners?, etc.)? Correct me if I'm wrong, but you are trying to find a way to benefit off of the other partners because you have your RE license? I would think passing saved $ through to your partnership is better for you and the partnership in the long run. Just my opinion. Maybe I am not understanding this correctly.

If you are set on doing this I would capitalize it into the deal as it would be the most tax efficient way, unless you're strapped for cash.

Our firm is backed by ultra HNW family and because of this, we rarely sell - we focus on tax-efficient strategies. We are currently building a portfolio across the river in Hudson County, NJ full of amenities and tailored towards young professionals, as they continue to get priced out of Manhattan. 7.5 to 8 caps do sound enticing, however, deals like that can still be made up here. They are less frequent and require more work. We are close to breaking ground on an 80 unit project that will stabilize at around ~7.2 cap, based on our other completed projects in the area. 20 minute commute to Manhattan. 

To put a shovel in the ground in Georgia (I know nothing about the market), I would expect higher caps? 

The pattern you are describing will be common trend over the next few years. Watching secondary and tertiary market cap compression is a great indicator of the U.S market as a whole.

Come to NYC and you'll see brokers pitch MF buildings with cap rates at parity with 10 yr treasuries. Hah. What happened to risk premiums? Sure, the interest rate card gets thrown around a lot but even if it creeps up slowly, cap rates will rise - this is market economics. A lot of silliness is going on, although from what I see, senior lenders are taking a bit more caution which should diminish the chaos. I think equity investors will experience the brunt of the pullback this time. 

At the same time you have secondary markets which have not reached previous peaks...solid markets with sound fundamentals and growth metrics, i.e Phoenix. Leads me to believe there is still some room to run...

Bottom line, I have no idea where the market will go... but it sure as hell does not seem sustainable. 

 Daniel,

My advice would be to stay focused on your career. Master your craft to increase your income. People may disagree with me, but save that $1,000 and focus on your profession and learning more about the REI business. Sure - some people may have creative ways to invest that capital, but the reality is you need to pick your battles. Just my opinion.

Best of luck!

If you are focused on NYC metro area, those are not bad areas. My team is working on a 60 unit development in Union City right now. I will warn you, the DOB is no joke in UC. We had our project stuck in limbo for 8 months because of a TYPO on the resolution that was made by the court stenographer!

JC stay north and east of the turnpike. Try and find something near grove path - if you look west of Newport you may find some mf's that don't belong. 

Good luck.

Know your client.

If you have existing clients, know their acquisition criteria (asset class, cap rate, deal size), (sub)markets of interest, investment strategy (repositioning, stabilized, development, etc.), so you are ready to bring them a deal when the opportunity arises. 

I am currently focused on multifamily development and repositioning opportunities. If a broker floods my inbox with stabilized core multifamily deals, he is doing nothing for me.

Hope this helps.

I've worked with many brokers. Some add value, others simply do not. Not much else too it.

i.e. My firm is in contract right now to buy a property and develop 80 apartments. The only way I was able to lock the deal up and get into contract was because my broker called me the day the investor fell out of contract because he couldn't come up with the deposit. Had an LOI out within the hour. That is value add imo.