All Forum Posts by: Jim Groves

 I agree with all of these comments.  To get a 10% return on that investment you would need to charge another $200-$250/month in rent.  Are they willing to do that?  Also, you need to have the tenant put some skin in the game, especially if they are only in the space for 5 years.  If anything their investment would make them less willing to move.

 Greg, I've dealt with the challenges of trying to find a use for dead space and there are a couple words of advice I can give you:

1) Retail space is never attractive to potential tenants lying vacant.  Any use, even one that pays no rent is better than nothing at all

2) Given rule #1, your focus should not be on the credit quality of the potential tenant but rather the potential success they can have in your space.

3) The surrounding neighborhood and space will dictate the success of the tenant, not vice versa.  A good operator, whether they run a Subway or a coin laundry will know whether or not they can make money.  If they don't make money, you don't make money.  

Retail works best when tenant and landlord work in partnership, which often involves sharing the risk.  Recognize that the tenant has to invest money to decorate the space or move their equipment.  To offset this cost, you may need to forgo any rent but could require them to pay utilities.  Consider a % rent lease provided you have some ability to know how much business they're doing.  A good rule of thumb is that a retail tenant should pay no more than 10-15% of their sales in occupancy costs.  The lower end of the product, the lower the occupancy cost.

In finding a tenant, I had to spend a lot of time learning about their business to know whether they could afford the real estate.  Restaurants are the most difficult to operate unless they are taking over existing kitchen equipment, which it sounds like you don't have.  A tenant that is willing to sink large sums into buildout of the space sounds great in theory, but I'd rather have the smart operator that does it cheaper.

Good luck

Since this is a flagged hotel, you might want to review the franchise agreement to check the remaining term and flush out any potential PIP (Property Improvement Plan) that Holiday Inn may be requiring.  Now that the hotels are cash flowing again, the franchises are pushing PIPs to beef up their brand image. The loss of the Holiday Inn flag could really hurt your investment.

There are no limitations to the amount you're seeking to raise unless you're pursuing an intrastate offering, but typically successful raises are $2MM or less.  As the investor base expands, the amount raised should increase.

Bill, when you say "quality apartment investments" I'm assuming you are looking for Class A/B deals and not SFRs or 4-8 unit fix and flips.  If that is the case, I'd look into Real Crowd ($25K minimum) or Crowd Street.  There are a few linked on my site.

Both of those platforms are providing listings on behalf of the sponsor, so the sponsors determine which amounts they are willing to take.  As a result, the minimum investments tend to be higher.

Cap rate doesn't sound crazy to me, but a 6 unit deal probably wouldn't be valued on a cap rate.  If I valued my single unit condo on a cap rate basis, it would probably be less than that.  If possible, I'd look at it on a per unit value and see if there are any comps that support it.  My guess is most condos in Austin are newer and not comparable, but at least use it as a sanity check.

I have family with SFR rentals in the area and the numbers still seem reasonable relative to the purchase market, but those are very Class B in south Austin. It sounds like your location is better.

Thanks for the feedback.  I recognize that the ratings are all bound in the same range, but that's because they're all pretty similar in terms of equity risk, property types, etc.  The key is really the implied return vs the projected cash on cash, as you'll start to see some deals that are clearly better than others.  For example, there are deals rated D that are better than DDD because the relative return is better.

Right now I'm finding that the debt deals pay out a better risk adjusted return.  That seems to be consistent with what I've seen in the market where debt spreads have been flat for almost a year (spiking up right now though) but cap rates continue to compress.  That tells me that the equity market is getting a little overheated.

On another subject, you and I exchanged posts about your study regarding the NCREIF index and how it's not as volatile as REITs.  I argued that the NCREIF uses info on core properties (I believed, but didn't confirm), so it is expected to be less volatile.  I wanted to let you know I came across this explanation on the NCREIF website as part of my research on historical returns:

Is the NFI-DP a Core, Value-Added or Opportunistic Index?
Currently the NFI-DP consists of 8 funds that most closely represent core risk investment strategies; they generally target capital preservation, and stable operating income returns using moderate amounts of leverage. Although the types of investments will vary from fund to fund, they predominantly invest in private equity real estate, either directly or through fund of fund structures, along with public listed securities and cash to accommodate the daily liquidity provisions. As the universe of daily priced funds expands, NCREIF will monitor the product offerings and determine how to position products with non-core strategies.

How do the funds included in the NFI-DP differ from publicly listed REITS?
Investors in listed REITs buy and sell securities on a public exchange, the price of which is often influenced by supply and demand as well as other non-real estate market forces. Investors in the funds included in the NFI-DP buy and sell directly with the sponsor (manager) of the fund, the price of which is based solely on the daily valuation of the underlying investments in the fund.

There is a lot of hype around crowdfunding (some of which is way overdone) but it has the potential to address some market needs, namely an alternative to hard money lending and access to direct property investments at more modest exposure. Technology speeds up the process and brings efficiencies, but at its core this industry is just a 21st century version of the real estate syndicates of the late 80’s. It’s important to not repeat the mistakes of that era but unfortunately we are not addressing some key problems.

One of the key problems is the inability to perform the same level of due diligence as traditional channels.  I've written about this on our blog, which BP won't let me post, but I'll direct you to find it on our site if you want to read about our views on that matter.

@Charles Clinton welcome, your background is impressive and I look forward to more folks from the institutional side jumping into this emerging industry.  Look forward to your insights

Daren, if you already have 5 investors and you wish to form an LLC to make an investment, you are covered by the safe harbor provisions in the SEC regs. As long as you don't post general solicitation (post on BP, advertise, etc) and you have fewer than 100 investors.