All Forum Posts by: Daniel Reyes

@Harold Albertson

Hi Harold,

Thanks for your question - you might consider Appfolio or Yardi Breeze. Appfolio works well with smaller portfolios from a cost position and they have a strong support team, and Yardi recently released Breeze to compete with Buildium and Appfolio. I hope this helps!

I wish you well,

Daniel

@Ken Miller

Hi Ken,

Thank you for your question! A few things:

1. Do not be surprised when the “cash flow” on the P&L is not what you are receiving for a cash flow distribution. This question comes up a lot with newer investors; it’s important to understand the cash flow statement and income statement will mostly never match in terms of distributable cash. This is due to the mechanics of the financial statement.

2. I would advise you to have a conversation with the principal or financial leader at the management company and collaboratively decide on whether you are making a cash flow distribution or a P&L distribution.

You are not alone. This discrepancy has always presented an obstacle to various managers and investors. I encourage you to have a conversation and both you and the PM come to an agreement as to where the distribution figures will come from. If you are an asset manager, you might look to understand the reason why this appears this way on the financial statements, so you can explain it to your investors.

I wish you well! Please feel at liberty to reach out to me directly with any questions.

Best,

Daniel

@Storm S.

Storm, also pardon my delay. I’ll send you the sample agreement also. ☺️👍

@Fritz Ritter

Hi Fritz, please pardon my delay. I will send you an Asset Management Agreement sample, for your reference in a message this evening. ☺️

@Michael Ealy

Hi Michael,

Thank you for posting! These are very exciting figures, for sure. If I may, I would add a few comments:

1. These figures present more like "ground up" development opportunities, as opposed to a REPE fund or sponsorship/syndication. I've seen very attractive IRR at close to 35%, at best, for multifamily, value-add strategies. An opportunistic strategy may intend for returns like this. I would be curious to review the strategy, underwriting, LPA and financing for the deals above. They are exciting, but distinct.

2. The 8-12% cash-on-cash yields and 15-18% IRRs over a 3-7 year hold period may be attractive with the specific target investor profile. In the US, perhaps this may be more “standard”, as an investor in the states, but it may be very compelling for those seeking to invest from Brazil, Italy, Spain, Switzerland, Bahamas, Singapore, etc. The investor profile will determine an attractive return.

The investment and risk profile of the investors are the true determinants of “alpha” in the investment and finance world. As such, there is no standard of truth, if you will, of what is a “good” return on equity. Of course, at least always return the capital. Or else you will get a reputation and your investor friends will be sad. 😉

I wish you continued success. Please feel at liberty to contact me directly any time. And thank you for posting.

My best,

Daniel

Hi Bryan,

Thanks for posting! You've received excellent perspectives already; I would add a few items (and potential thought processes) that have the ability to present challenges:

1) Poorly Drafted PPM - a well-written private placement memorandum becomes an appropriate reference when potential challenges arise with investors. I remember a time there was a question as to how the calculation for a quarterly distribution should be prepared because the PPM included a clause that intended to account for when the funds were received (during the subscription period). Because the PPM was not explicit in how the distribution was going to be prepared and account for when funds were received, I made a judgement based on what I believed was a substantial interpretation. This will typically not surface, unless you have an investor who is very keen in analyzing financial reports ;).

2) Inadequate Property Insurance - as a risk management measure, the property insurance is an important part of potential crisis mitigation. You can include insurance premiums in the initial underwriting models, but it's wise to ensure there are standard things covered by the insurance company, like 12 months of lost rental income, etc. It's also good to consider if the state you are investing in provides protection again insurance company insolvency, to be safe, in case they go bankrupt (like AIG, for example).

3) Desire to manage a fund first, as opposed to a specific deal -  perhaps not as common, but I've encountered those who are more interested in starting a fund and deploying capital when the appropriate deal is available instead of sponsoring on a "deal by deal" basis. Syndications are generally more practical, whereas a real estate fund is a better choice if you have consistent deal flow and capital.

You will do well! Please feel free to reach out to me directly if I might be of assistance to you.

All the best,

Daniel Reyes

@Matt Nettles

Hi Matt,

Thank you for posting! Good question.

In general, lenders underwrite single-family (4 units or less) and multifamily homes (5+ units) differently. Typically a single family property, as defined above, will be valued based on comparable sales in the area. This means, no matter how the single family dwelling “performs” financially, the potential capital appreciation is limited to the general value of similarly sold homes in the area. Multifamily dwellings are underwritten with financial assumptions, usually tied to a trailing income statement that reflects revenue and expenses over time. This allows the lender to see how reliable the property is in producing returns, and the likelihood it will continue to do so in the future. In effect, there is more information available to make a risk-adjusted lending decision when banks provide capital for multifamily properties.

This, among two or three other major variables (recourse vs. non-recourse, GP/sponsor track record), make it easier to secure a loan on multifamily deals. And by easier, we mean easier for the banks.

I wish you well!

All the best,

Daniel Reyes

@Fritz Ritter

Hi Fritz,

Thank you for your question. I’d like to add two details:

1) A sponsor/GP would charge an average 1% asset management fee annually of the valuation of the property (0.25% per quarter - to be reviewed after the annual valuation by an appraiser such as Colliers).

2) A third-party asset manager contracted by the sponsor may charge a 1% of monthly EGI asset management fee.

I could send you a standard asset management agreement to review, if you are interested.

I wish you well.

Daniel

@Justin Reyes

Hi Justin,

Firstly, your last name is GREAT.

I agree with the feedback provided above. One thing I typically don’t see very often in property management professionals, but is unusually valuable is: the ability to provide valuable insight in the underwriting process. I remember advising a management company who was under pressure from an investor/client. I inquired into their involvement in the underwriting process and, not to my surprise, they weren’t involved at all. I met with the investment team when they visited from New York and asked to see their underwriting assumptions/model. They quickly said they really relied on the broker’s underwriting instead of doing their own. Alas, this resulted in the property manager being held to an impossible standard.

My advice: be an active part of the underwriting process. This takes a bit of time because you have to build a relationship and trust with your clients, but it is worth it.

I wish you well.

Daniel

@Gabe G.

Hi Gabe,

Thank you for your question! Yardi Voyager has better infrastructure for more of an asset/portfolio/fund management perspective and it also has custom reporting features. I will say, the cost may be prohibitive if you do not own/operate at least several thousand units. I was preparing asset/portfolio analyses in Excel for close to 10,000 units before there was a Yardi implementation and data migration.

Please feel at liberty to reach out to me directly if you would like to discuss further. I wish you well!

Best,

Daniel