All Forum Posts by: Dean B.

Hi Elizabeth and Lee, I figured this post went dry.  Thank you for taking the time to comment.  Elizabeth, Your program and strategy sounds like you are able to have your cake and eat it too by providing housing and addressing a major epidemic. We're in the healthcare field as well and actually see a significant amount of addiction patients. Lee,. if you had only commented about two weeks earlier :-). That's actually an excellent idea that we didn't think about. Everything happened so fast and we were under such a tight timeline we didn't really have a whole lot of room to negotiate other than overall purchase price.  Luckily, we agree to pretty fair price contingent upon credits being issued. now that we are aware of this we have another parcel that we might try to repeat the same process.

Hi BP community, I've posted here before with some really great answers from a lot of really experienced investors. I would love to get some feedback as I'm approaching a negotiation that was unexpected.  whether or not you have experience in affordable housing, I'd love to hear some feedback as per the actual numbers and deal structure. I know many of you have had creative transactions in the past.  Here's the rundown:

We have a 4 + acre parcel and have been working on the project for a number of years. We're about to head into working on construction documents with an estimated construction cost of 27 million for a 140 unit rental market rate project. Valuation is projected to be somewhere in the 47 million dollar range once built.  Lots of challenges to get from where we're at right now to putting a shovel in the dirt re: lending source, endangered species, parking issues, ETC.

With the above in mind, I received a random phone call from an affordable housing developer last week. They own approximately 40 large projects across California that is 100% affordable housing. I verified their information and they are a very successful affordable housing development company..... They reached out to us because we have a density that meets the requirements to potentially qualify for affordable housing tax credits with the application ending on July 1st. We are in the middle of negotiation with the assumption they are able to secure these tax credits based off of securing access to our site per the agreement.  In short, they want to tie the property up for approximately three months pending results of their application. The only risk to us is that it ties the property up for three months. Note: they have had much success obtaining these credits in previous projects and just completed a project in our local area. 

There's a lot of hypotheticals here but what started out as an initial $3m offer ("most we can do"), was pushed up towards $5m.  all this with my explanation that we originally were targeting $11M. I then came back with a number of $8M as a stretch for our partners.  They seemed very eager to play ball and I don't want to leave any money on the table given that we have a project they can make some money on while at the same time we can make some money not having to deal with developing the project ourselves. All while giving the community something they desperately need. based on our pro-forma, if this is converted to an affordable housing project it's looking like somewhere in the $30-32M range keeping in mind this is a hold of at least 50 years as affordable.  

1. We know the figure we hope to settle on but I'm curious to hear feedback.  My read on this is that they have the team and resources to throw at the project to make it successful and even the chances of receiving the credits I think are above average.  What do you think is a reasonable final amount?

2. we are considering adding in a good-faith non-refundable deposit since they will tie the property up for two or three months. So We're trying to get some idea of what makes sense based on the projected valuation. My guestimate is somewhere in the range of $50 -100 k.  Does this seem reasonable?

3. Any other creative things we should think about including?

While I hope this works out, my assumption is it's a little bit too good to be true.  However, we have the land and the density - both of which don't really exist in this area.  

And go.

@Greg Scharlemann nice suggestion. I just sent out an inquiry to the GC team on that project. I recently was put into contact with another GC who seems to be confident in a more competitive bid.  Thx again for the suggestion. 

@Josh Cuthbertson It can be in their scope. The issue is now we are at a fork in the road re: Architecture. We've done most work to plan for modular specs - which are quite a bit different than stick. I agree with you, we are reaching outside of the immediate area (hopefully within CA) for other bids.  Our local teams are just that "busy prices" across the board.  Fire home still being finished in most subdivisions still so work is still busy. I think we are going to spec this out stick built and get some initial estimates from a variety of teams.  If not in our budget, we will do it ourselves.   @Greg Dickerson will ping you a bit later.  Would love to pick your brain if you've done or evaluated bigger modular projects.

@Greg Dickerson nice. I only used $18-25 so we don't call out to who could be reading this. I know the dev world is quite small.  It was a hard $19M.  Some stringent storm requirements but nothing to dictate this level of cost.  Site conditions are pristine (almost completely flat with minimal grade and soil work needed). Parking and utility work middle of road for the area.   We aren't complete CD done but we are close.  Glass tower is 100% not what we are doing...quite the opposite. Traditionally low-middle income area with quite a few large affordable projects mixed with market rate SFh in the 1-mile radius. 

Your 200 is what we were budgeting for originally FYI. $205 was part of our initial modeling +-10%.  And that was with mid-to-low finishes given our particular "fire damaged" area.   Sincere thanks for @Jay Hinrichs and your comments though...for a second we thought we missed the "construction prices up 80% memo" somewhere.  Its continuing to look like back to architects drawing board...

Sonoma.  We almost feel like we are on Mars when we got these bids back.  Our GC quote noted was the LOWEST bid...we had one for $45M!!!! GC site prep and finish work alone!

BP wise ones...

I am in between a rock and a hard place right now. I know many of you are in California and know how (block my eyes from the gouging) high the costs are with construction in NorCal. We have a beautiful flat parcel in NorCal and are about 2 years into the process of developing the site. We own the land outright. We are surrounded by multifamily and SFH. We've gone the direction of modular to try and save time/money but the numbers just are not penciling out like we'd like them to. Would love some feedback from anyone with experience in this market and/or with this size of project from a start to finish job. Since many of you will ask the details, they are below. What we are trying to figure out is if we can get costs down if we do this on our own and piece out to local subs - We've only done rehabs so this is a bit new for us. If we did this on our own in smaller bites vs. financing through lender with strict guidelines...also if stick built is significant savings vs modular at these rates. We are in no rush but these numbers are a bit crazy...but so is this area in costs right now. Hard to imagine anyone penciling profit off of these numbers even with skyhigh rents.

Location: North of San Francisco 

Project: 145 units. Comprised of a few 3-story apartment complexes and a couple dozen attached SFH. <5acre parcel. City is DYING for us to build asap. 12-378SF studios (Total: 4550sf), 63 510sf 1/1s (TOTAL: 32100sf), 36 875sf 2/2s (Total: 32000sf), 12 senior 2/2 rooms (TOTAL: 5500sf), 22 sfh (3/1 1100sf) (TOTAL: 23000sf). RENTABLE AREA: ~96,000sf. Average rent rate currently: $2.30/sf. Potential of $218,000 gross rent at 100% capacity.

Costs: Quote are for Modules alone delivered to site $16-17M; GC end to end (site prep, finish work) work quotes $18-25M.  These numbers are pushing above $355/sf cost to build. This is not including any finish work on our CDs. Or at least another $500k that that I anticipate costs for.  

Any and all feedback (constructive or not) would be greatly appreciated.  Tear these numbers apart, tell us how horrible the deal is...just would love some feedback. We are not quite asking our local friends who do this type of work so literally any feedback would be golden. 

@Marc. Very true. And obviously one of my biggest concerns. We have worked with a previous property with a similar situation and the family is familiar with this topic as the family does own a large gas station property as well built from dirt up. I am still looking into this as it would obviously change timelines significantly if there were problems.

Thanks for the quick feedback….to respond:

@Navi – Thanks for the comments. I have an outside investor I can finance my own working capital business needs. But they collect interest on investment, however. If I used my 150k, I pay no interest. No I do not need 150k for inventory by labor day. 20k for rehab is based on my experience working with my family on numerous projects as they have a vast RE/Development experience on small and large projects with very very small budgets. $20k is actually a high estimate. And yes, I’m 100% sure of this. Thanks again Navi.

@andrew – Thanks for the breakdown...yes that is what I’m seeing as well. $12k estimate is very accurate and it starts immediately once purchased, not occupied. The only issue is that it will take it to be “up and running” to get the money back out (at least that is my worry). The question is whether I can leverage the property immediately once purchased. I am not too familiar with equity loans on properties like this one. As for investing with family…this will help considerably with a number of logistical concerns moving forward the family business. Without too much detail, both the property and location simplify many things…this is the reason we moved forward to make offer and tie property up. If I do not use this cash, we have to search for hard money lender--> $$$$ interest. Thanks Andrew.

Hey all, Thanks for viewing the questions and apologies in advance for the long message.

I'm in a bit of a struggle deciding on a new, first investment that is as follow:

Property: Previously a 60 year old gas station, most recently a fully functioning restaurant. Unsure of exact details but it had issues with gas station cleanup due to minimum ppm for ground water/gas. the laws have changed minimum to now make this "pass" code, but that is major issue with property. Otherwise it needs some rehab to get up and running (approx $20k).

I have about 150k in cash and use this for mainly business expenses/inventory. My family has locked in (paper work-wise) a property that was sitting on market for some time due to a 60-year old gas station on property - proper cleanup issue (was most recently a restaurant). If we do not make cash payment, owner will release offer and go with another offer at $180k from another investor. Property most recently sold for ~$300k in 2008. It is an ideal location for our needs (family business).

Laws have changed the minimum ppm in our area and it now should pass code to allow construction on property for restaurant/tasting room (this is reason no one would touch this property until now). My family has winery/vineyard and wants to turn this property into a tasting room. However, they are unable to purchase said property with cash as they are not as liquid right now. I am. The deal that would be arranged is that I would buy the property at approx 150k cash, then have a NNN lease of about $1000/month billed to them. My family would do full construction and development of property on their dime. (previous tenant was paying $5000/month in rent). It is currently unusable as functioning restaurant and would require about $20k rehab to get it up and running, approximately 6-8 months timeline for completion with permits factored in.

The two overwhelming questions I have are:

1. Is this a good first investment for $150k cash? Or would a multi-tenant rental be more ideal (residential)? I need to put this cash to work, but I'm in a struggle between helping my family and other investment options.

2. (this one I do not know answer to at all) Would I be able to leverage this property (prior to construction) and "get" money out of it for business expenses (i.e. equity business loan)? Or would construction have to be done prior to this happening. The issue is that I use cash on a bi-monthly basis to purchase inventory and I would at some point need to use the property for a business equity loan.

I realize this is a pretty complex scenario and I do understand that whoever responds...it is only an opinion. So please feel free to respond candidly. I am consulting multiple parties on this as the deadline is in the next 48 hours, so know that any responses will be treating with caution.