All Forum Posts by: Gwyeth Smith

I like to see a well organized package that highlights the deal, the operator, and the team in place that will be responsible for executing the plan.  Projected returns are important but I like to see what assumptions were made to justify those projections.  Sensitivity analyses are important to me as well (i.e. how changes in certain variables effect the return).  To answer your questions specifically about which numbers I look for, it's dependent on the type of deal but most simplistically I look at cash on cash return.

@Ian Ippolito.  Thank you for such a detailed description of your DD (even if you described it as the brief version)!  I always ask for the full underwriting performed on the project and at times get a little resistance because the operator does not want to share the excel sheet or calculator used.  The typical resolution is converting the excel to .pdf.  Do you run into similar situations and if so, how do you handle that?

How do the operators here handle that request?  Do you share your full underwriting in your proprietary calculators?

@Akkiemaj Frederick, I know of the property you are talking about. The owners have actually declared bankruptcy and are out of CA. There are issues beyond what is listed in the OM (i.e. the water runs through the HOA and then billed to the entire complex (which is over 400 units) but the water authority won't operate it that way anymore. They want you to re-plumb all units before they will even consider going out there to construct a plan for metering. Also, the property is being sold "as-is" so you are taking on a risk regarding liens not disclosed. I think they are trying to give this away for free for good reason!

Running sensitivity analyses can help with investment decisions.  J. Scott had a recent podcast where he talked about mitigating market risk by running your "worst case" numbers into your model.  With that said, Warren Buffet has a great quote regarding risk; "risk comes from not knowing what you're doing."

@Francis Morris, I like the following sites for market metrics like the one's you mentioned:

• Berkadia.com
• Marcus and Millichap
• CBRE
• Census.gov (specifically factfinder.census.gov and utilizing the guided search feature)

The Marcus/Millichap and CBRE also have a property search feature where you can look at OM's for listed properties.  You will have to set up an account and sign a non-disclosure to get access to these, but that's pretty easy to do.

@Jimmy Lieu, welcome to BP.  I'm a believer in building your teams first, but there is something to be said about jumping in and just doing it.  You can definitely build along the way to a certain extent as the first people on your team can help recommend the others you might need.  If you already have a broker you are dealing with you can ask him/her to recommend a RE Attorney, Mortgage broker, etc.  Best of luck to you.

@Michael LaRocca, I am born and raised on Long Island and invest out of state.  I know people who successfully invest here.  I have also heard horror stories due to tenant/landlord laws.  For me, personally, I choose to go out of state.  As I said before though, I know people who are successful here.  I always thought that investing in an airbnb on the North Fork would be a good play but don't know the viability of it (that's not my investing strategy).

@Nick Brown it looks like the broker is trying to give you a stabilized CAP rate (17.5) and an actual CAP rate (5.73). Neither of those are the market CAP rate for the area. IMO, CAP rate is of little value when analyzing non-performing assets (occupancy less than 85%). In a situation like this you want to find out why the occupancy is so low and what needs to be done to get it to appropriate levels. Figure out how long that will take and at what cost. Then run your projected numbers and calculate other metrics like cash-on-cash return. You can then use the market CAP rate (which he has not provided) to figure out how much equity you will have created in your project. I'll second what others have said here.....Don't trust the brokers numbers. Always verify yourself.

@Kim Allard. Thank you for your insights. I completely agree with the importance of knowing your goals, return objectives, and exit strategy before shopping. Also, the importance/unimportance of CAP rate is always a fun discussion to be a part of. I'm not as familiar with a CRE advisors and the roles they perform. Are you using them only on the acquisition end or for asset management and ultimately disposition as well? Would you mind diving into that a little bit and what their typical fee structure might look like? Thanks again for posting the article and your insights.

@Garrett Blanchard, depending on what you are bringing to the table, you may be able to get in on the general partnership side of a syndication through an existing program.  I don't have first hand experience with it, but Michael Blank has a deal desk where you can either bring a deal or raise money.  Either would get you in on the GP,I think.  Check out www.themichaelblank.com.