All Forum Posts by: David Besins

I recently acquired a decent size Flex Asset in the PHX market, we are in the last phase of leasing it up, and have quite a few requests from investors to get in on the deal.

I am looking at starting a syndication with this asset. One issue came up and need your help:

The stabilized value will be $20M

Debt: $12M

I was going to raise $4M for 50% and keep the other 50% (I really like the space-great credit tenant-I pushed hard to get 4.5% increase - newer built-best location etc.)

TAX issue: My basis in the asset is closer to $5M (50%=2.5M) when raising $4M for 50%, how can I structure to not incur a taxable event?

Thank you

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We own a few smaller 3-7 units in the area. the heat is lower the rest is OK, although cap-ex repairs etc maybe higher.

Bumping the expense from 150K to 200K it doesn't make sense unless I can get it for 4.2/4.4 which is way off.

My thinking was to get under contract 4.9M, if during the DD we find out our expenses are going to be 200K (50K more) just go back to them explaining our findings asking for a price cut.

The issue is that I think they need to spend more time on the market to get them there.

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A little update:

We heard back form the seller and it seems like we have a deal at 5M but I am almost sure that by sticking to my offer the can accept. the offer was:

4.9M - with 80% bank financing and 10% seller financing.

Rent is 612K/year. My main concern is that expenses they shared is only 150K/year (vacancy is not in that number). From most of your comments this should be closer to 200K.

What to do next?

I am thinking of getting under contract at 4.9M making sure they understand this is based on their expenses, and during due diligence get 3 years of financials and if expenses are closer to my number just adjust the pricing accordingly. What do you guys think?

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What d you guys think I should account for repairs, maintenance and reserves?

20% seems high to me that would be 120K/year

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Additional information:

All units have lead certs

new hot water 2016

2 Lochinvar Knight High Efficiency with 10 year warranty; Installed 2016 $65,000.00

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Originally posted by @Colleen F.:

In Boston area its worth considering. Aside from what others have said. If you look at expenses for heat- look at it against the square footage heated. It should be a plausible number. Especially for oil it is easy to just call a different provider. Figure expenses at gallons used times highest fuel cost. Insurance make sure they quote cost for brick. Is it deleaded?

Not sure about lead. For utilities my plan for to ask for 18 or 24 month of bills for all utilities during the 30 day DD that should give me an accurate picture.

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Originally posted by @Darrell Lee:

9 Times Gross Rent Multiplier? 10% DP... I agree with the others that your expenses are way low and I'd expect you to find that your expenses are at least $100k/yr low. That large of a building I'd estimate 40-45% expenses at best. At a 9x GRM and 10% down, I doubt you will be breaking even.

As a life long Los Angeles person now living in Vermont, I've learned a lot of expenses in the NE are very different. I turned off my pilot light to my L.A. furnace 10 years ago and the few times it got really cold, I'd use a $15 space heater at my home. Fast forward to today, I purchased a couple obsolete municipal buildings with underground oil tanks... one is 10,000 gallon the other is 15,000 gallons. I bought a 12,000 s.f. mothballed school and it took at least 4,000 gallons of oil to keep it from freezing up. At today's prices of almost $3/gallon, that's $12k maintaining a temperature of about 50f degrees so it doesn't freeze up. Your heating expense is way low. In 60 years in L.A. I've never had a lawn... In Vermont, New Hampshire and Ohio, I now own several lawns with expenses I hadn't included.

But I bought REO and municipal surplus auctions, paid cash and paid a fraction of the median average prices. After rehab of a duplex for example, the GRM is around 2.5x...

That's a big building you are looking at... Can you afford going $5-10k per month out of pocket if things go wrong? I prefer smaller investments to be more diversified. Boston, like LA, NY and DC the prices have gone sky high. But you said Boston Area so it depends a lot on the area. In Boston proper 9x may not be too bad but if you are 30-50 miles away, you could be overpaying...

Using gross rent (no vacancy) @ 5M this would be 8.1X the 2 smaller unit I just acquired are 6.9-7.5 with room to increase rent. 2.5 is great (good for you!) but I am not sure it is applicable, at least not even realistic for what I have been offering on (and being aggressive) and looking at

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Also - Can anyone share a due diligence check list they use for larger buildings?

I need to be thorough and don't have experience with larger buildings.

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All Forum Posts by: David Besins

David Besins has started 5 posts and replied 24 times.

Post: Tax question on Syndicating an asset you already own

Post: Tax question on Syndicating an asset you already own

Post: Tax question on Syndicating an asset you already own

Post: Is this a good deal - $5M income property

Post: Is this a good deal - $5M income property

Post: Is this a good deal - $5M income property

Post: Is this a good deal - $5M income property

Post: Is this a good deal - $5M income property

Post: Is this a good deal - $5M income property

Post: Is this a good deal - $5M income property