All Forum Posts by: Frank Greco

@Evan Polaski

Yes, the old saying of what separates the professionals from the amateurs rings true here.  You have to communicate even the most uncomfortable information.  If it’s honest, sincere and shows true concern for your investors and asset, it will be appreciated.  Now is not the time to button up let anxiety and fear take you over.

I appreciate your comment!  Thanks!!

Frank

@Alina Trigub

Thanks Alina!  

Some of the measures you’re taking are very good.  You can get creative with landscaping to reduce costs.  

Regarding banks, I would advise you to stay on top of them.  Bankers are being inundated with a barrage of calls from nervous investors.  Some deals are up in the air and without question bank credit committee members are trying to stay abreast a very fluid market.  Further, most are working from home, which is disruptive and slowing things down.

Thank you for your insights!

Originally posted by @Roni E.:

First I hope everyone is and continues to be sage and healthy. I do no think we are in for a tough year. A lot of folks who were very active have not seen a downturn and I worried for them as they have not been through a downturn. The next worrying point I am seeing folks still be extremely aggressive on the cap rate resale. This is a different market now. 

Roni I agree with your thought on aggressive cap rates.  While cap rates move relative to T-Bonds, and we approach zero%, some may project lower cap rates.  I think the credit markets will adjust conservatively and we should see them rise.  This is a new market for many!  Thanks for sharing your thoughts!

Let’s face it, for those of us in the business we knew a correction was coming. This hard this fast was beyond the prediction of most if not all of us. We knew the party had to end one day but, the awakening was rude nonetheless

For the past 10 years, Multifamily real estate has been a shining star. Demand had been going up, consistent rent increases, compressing cap rates and price appreciation, tax benefits, and depreciation. In addition, syndication, crowdfunding and ventures became normal. This all accumulated in everyone wanting a piece of the action. But had it gone too far?

From an economists perspective, a good rule of thumb is to compare your real estate investments against the risk free rate of return which is typically Treasuries or 10 year T-Bond. Over the past 20+ years, interest rates have been declining, making real estate investments appear more attractive. But are they really?

The short answer is yes. The longer answer gets us into the difficulties of pricing various risks. In real estate, we have 3 major risks. The first is operational risk, the risk associated with operating the property efficiently, keeping costs in line, vacancy low and income high, management, etc. The 2nd is market risk. Is the property in a market that has good fundamentals for growth? As we can’t “move” the asset to another market, we can be exposed to demographic shifts and legal risks. Rent control laws, higher licensing fees, local taxes or mandates are just a few of the implementations to be aware of. The third is liquidity risk. As we know, we can sell a stock or bond with a mouse click for immediate cash, that’s far from the case with real estate where it can take months longer.

Whether the spread of return between 10 year T-Bonds and Class A, B or C properties was enough can only be identified in a case by case basis. As I’m writing this, we should not be surprised that some sellers deals may already be going south. Buyers are pulling out given the uncertainty, sellers are re-trading lower to get to closing, banks and bridge loan operators are pulling out of deals. Of course some lenders will be still lending, but rest and be assured credit policy will undoubtedly shift as we try to find the new norm and equilibrium in the market place.

Further, operators with large cap-ex may have difficulties meeting their deadlines. With a majority of the travel and service industries shut down, the ripple affects through the rest of the economy will be felt far and wide. Rent collections will undoubtedly be affected. So what can you do?

Action steps

1. If you’re in a GP in a syndication, start communicating frequently with your limited partners. Expect and prepare for calls to liquidate as LPs may look to raise liquidity given their situation. What can you do to calm their fears and anxiety that may have?
2. Raise liquidity as much as possible to weather the turmoil in the next few months. Cut or re-adjust cap-ex projects to save cash. Offer reduced rents for vacant units or older units not updated. Better to have 75% of the rent than 0% of the rent.
3. Communicate with your bank about options available to you. There is greater flexibility in smaller regional banks than larger ones. Seek a rate reduction or interest only payment plan for a short while if possible. In commercial real estate, virtually anything can be negotiated so the stronger your balance sheet and proactive you are, the greater the chance for success.

In these trying times, stay healthy, stay strong and stay safe. I’ll be happy to hear your thoughts.

@Eamonn McElroy.

Thanks for the help. As I continue to acquire property, I'm looking for the best strategy to minimize state taxes and asset protection. Creating a Florida LLC makes sense, but my others are all in a holding LLC for double protection, which I like but all are NJ LLCs.

Once in Florida, I may branch to Georgia so looking for best “set up” as I plan for growth and not to complicate matters down the road. I hope this clarifies a bit.

Thanks!

My LLC is domiciled in NJ. It holds a couple of LLCs that own property. I'm looking at properties in Florida and may move there. What is the best way to acquire new property in Florida? In a Florida LLC? Create Delaware holding LLC?

Looking for long term strategy to minimize taxes. Existing properties in NJ may be 1031 exchanged at some point in future.

Thanks in advance for the help and Happy New Year!

@James Canoy. As a former Wall Street guy, I would say jump in with both feet. You can pull a foot out later if it doesn’t work out. Things will fall into place and you have to believe in it. Having said that, have you done some hard analysis? What is the story with the property? There’s a lot to this but don’t let fear stop you. If you want more info, pm me and we can talk. Enjoy the ride and protect yourself. Best of luck to you!!

@Michael Emery Jensen I think for the cost you can use those funds for a down payment and the lessons learned actually doing it will be far greater than being “taught” it. JMHO, but I do know a few that are and they are successful. Key question: do you need a group to succeed or do you have what it takes within you to succeed? Best of luck in your future endeavors!!

@Morgan Klein I have each property in it’s own LLC all owned by one LLC (series). Great protection against liability. Good luck on your successes!!

@David Baier are there parts of Orlando that would not be a good area to invest in? I plan to visit soon to look around. Thanks!