All Forum Posts by: David S.

@Diane G.   LOL....We might share the same first name but that is all....So they actually show explained in detail how they came up with their first number?....I know it must have been very frustrating, if not suddenly much more expensive, once after the tenant lawyered up but what would you have done if, after you told them to "F off" based on their outrageous demands, the tenant then said, "then i won't be moving, me and my room mate are happy where we are"?

I do not know much about the condo conversion process, although I have heard something called the Ellis Act was a tool used much by developers buying tenanted building, evicting/buying them out and then converting to condos....What would happen to the building condo conversion if you could not come to an agreement on the buyout? 

Happy it worked out for you and as I said before, I think you got a good deal if the $380,000 could be viewed as a reasonable starting point from the tenant's perspective (and on this, I would have told them they were out of their minds and to get lost too!)

@Diane G.  I think you got a pretty good buyout deal...I can see where the tenant’s lawyer came up with their number...I mean mathematically, if market for your unit is $4800 and the tenant was paying $3700, the annual difference is $13,200...I see good small multi-res in San Fran recently listed at 3%-4% caps with many selling for over list...if one caps the annual difference of $13,200 at 3.5%, then the starting point for the tenant is theoretically $377,000….So if the tenant didn’t really want to move, he could have held out for much more than $61K...Instead, your old tenant seemed happy enough to take his “windfall” and splurge on a $3800 a month (one bdrm?) apartment.

Did you and friends get together to buy the building initially with intent to convert to condos or did you just buy 1 TIC unit, then rent it out and building owners as a group decide to go condo later?...I am wondering how much of a premium a vacant condo unit gets over a vacant TIC unit.

@Jay Hinrichs knows " There is one syndicator out there that only pays cash". I would love to do some research on this syndicator. Can you share names, contact info? PM me if you prefer. Thanks.

"And for $250-500k and up investors, operating sponsors often provide a share share of the GP but that is not available when a capital raiser is involved." @Mike Dymski, this is interesting. Are you suggesting that if an LP liked a deal enough to invest $250K instead of the usual $50K min, he could conceivably negotiate better terms such as a cut of the GP's share?

Thanks to all who have provided their thoughts and advice. It is really appreciated.

Just as @Brian Burke said, I am finding out how hard it is to do due diligence on the institutional investor.

The sponsor said that they have a long standing relationship with the institutional investor although it does not appear they have had to go through a downturn in a deal together, which in my view would be the big test. They say the control and buy-sell provisions are language that is required as part of the docs per the institutional investor but that the institutional investor is really leaning on them, the sponsor as the operator and advisor. The sponsor balked at providing a contact at the institutional investor. I was able to google and find them online but it does not appear that they will be returning my calls. The syndicate's equity and that of the institutional investor are via TIC's and seemingly on a pari-passu basis, although I cannot help wondering if there are any side deals that might make the deals terms better for the institutional investor (after all, they are bringing a huge chunk of the money).

@Brian Burke said, " there are structures where the LP can be made completely whole while the syndicate suffers a 100% loss", wouldn't this have to be spelled out in the PPM/Operating Agreement?

Since i cannot seem to get past this concern, I will be moving on.

Thanks all for helping me work this through! 

Let's say that I found a MF Syndication Offering that seems to check most boxes for my investment criteria. The sponsor is well experienced, the value-add MF project will be moderately leveraged with long term fixed rate debt and the underwriting seems conservative. However, in addition to the sponsor’s equity and the equity contributed by regular LP investors like me, there will be an investment fund that will take a majority interest that will significantly outweigh the equity position of the sponsor and the small (lets say retail) limited partners like myself.

Under this scenario, on the one hand, I kind of view this as additional endorsement of the deal. On the other hand, the institutional investor has major decision making power including choosing when to sell the property. There is also some kind of buy-sell shotgun provision that would allow them to take out the regular LP investors at then fair market value at any time after x number of years. One of my concerns is if the value add does not work out or the deal starts to slide due to a recession or other reason, the institutional partner could decide to sell without letting the other limited partners have a say (say via a vote) and thereby force us to sell at a depressed valuation since it would be unlikely we would have the ability to raise sufficient equity to buyout the institutional partner at that time. Another concern is that once the execution risk of the value add has been completed, the institution could decide to buy us out and thereby not allow us to enjoy the full benefits from the value add.

Is my concern that the institutional partner’s interest may not always be aligned with my own interests legitimate or should I take comfort in that they also see this as a deal worth investing in?

@Logan Freeman. I thought both Lenexa and Independence were both in Kansas City. They both appear to be about 20 minutes away from Downtown KS. Independence is east of Downtown KC while Lenexa is SouthWest of Downtown KC. 

@Logan Freeman @Hadar Orkibi. Thank you for your feedback. Let's assume I am happy with the sponsor and all the other components of the deals. They are both similar in that they are not overly leveraged (about 70% loan to purchase price and much better on loan to cost) and have 10 year fixed rate debt and offer similar COC with target 7 year hold).....I am just trying to choose between the two locations because I do not want to invest in both.

I am trying to choose between investing in two Syndication Opportunities in Kansas City as a Limited Partner and am seeking local BP input as to which neighborhood is may be better.

One of the Syndication Offerings involves a B class townhouse style community in the College Blvd and Hauser Street area of Lenexa with reported good access to Hwy 435 and Hwy 35....The other is a B class garden style apartment community along S. Jackson Drive in the Hwy 70 and Hwy 470 area of Independence.

Thanks in advance for any insight offered about the pros and cons of these areas or which neighborhood would be preferred over the other.

"Is investing in a syndication risky if the market changes? I don't want to invest money for years in an apartment deal if there is a chance the market could change and leave the syndicator broke. Any suggestions on this?"

There is definitely risk. That is why all PPMs say the investor should be prepared to lose all their principal before signing.

I am sure you know we are in the late stage of the RE cycle. The economy is arguably overdue for a correction. While multi-res was found relatively recession resistant during the last great recession, it does not mean it will be the case the next time given all the building that has been going on. While homeownership is still a challenge for many, I can also see that in the next downturn, because of the recent increases in rents, renters may start doubling up and sharing rooms.

If rents dropped enough or vacancies rose enough so than the property's income could not service the debt, the lender could call for repayment and that would be the beginning of the end for the investors investment.

My suggestion at this point in the cycle is to find sponsors that have been through the last recession and projects that are conservatively leveraged. Less leverage usually implies lower returns but it also provides a greater margin against market forces, the impact of which the even best sponsors may be challenged to navigate through.