All Forum Posts by: Jimmy Klein

Ok so here is the summary. A class C apartment was bought by my friend not too long ago. I invested 20% as a silent partner and there are two other partners. The loan balance when the complex was bought was $2 million. The apartment was unable to service its debt about a year in. So the bank tried to renegotiate the principal with us. We took an additional haircut of $200k on principal from $1.9 million (outstanding balance at time) to $1.7 million. The property was still underperforming and the bank sold the note to a private buyer for $1.3 million. The loan is full recourse with personal guarantees. My question, can the bank still come after us even after the note is sold. The bank took a total hit of 600k ($200k from cut and a loss on sale of the note). Are the banks tough in enforcing these full recourse guarantees even if they no longer hold the note? 

I own hotels. As others mention there should be a plaque somewhere regarding management or ownership. You can also just go to the city records and find the agreements. You can easily find the LLC and cross reference to search for the manager of said LLC.

Ok, so I have multiple properties that I want to put under one corporation. For those in the same boat, how have you structured this? For example, I got some multifamily properties and a retail strip center. Each has its own LLC of course, but I want one overarching organization. So my idea is that I make an S Corp called "XYZ Investments", which owns a 100% of each LLC. Is it possible to do it this way? How have you guys done it? How do other real estate investment firms with large portfolios do it?

As others mentioned, you can easily get a SBA loan, which might even push the leverage to 80%. The purchase price isn't bad at less 2.5x GRM. Cash flow is strong so you will be able to hit a pretty good debt service.

@Adam McLellan

I love Moes and prefer it to Chipotle. Huge fan of the sauces. If only you were looking in the Mid-Atlantic, hell, I could even do a build to suit for you up here. There was a Moe's in the town, but it went under, which is surprising cause there was always a line. I think the location was a poor choice. 

@Adam McLellan

It would help to clarify what the name of your restaurant is. Is it a franchise or just a mom and pop? If its mom and pop, very few developers will build for you. I'd rather have Starbucks pay me $300,000 in rent then you pay me $400,000 in rent. Its because Starbucks is a strong credit and the name alone has value. If you have a franchise flag and are a large operator you will get some interest. For example, if you own McDonald's franchise, you will have every developer in Florida begging you to build for you. It all varies.

The only winners for these NNN lease assets are those that build them and sell.

We got about a 1.5 acre of land adjacent to a hotel. Looking to lease it to a business. The road it sits on has about daily traffic about 30,000, so it has very good exposure. Looking for either a leasing agent or someone with a business that is looking for some land. Will offer significant concessions too. All utilities and everything flows underneath. Basically someone just has to build on top. Please PM. 

Its certainly an interesting idea, but it might be restricted by the SBA. I would check with a SBA approved lender on this. 

I personally have partnership interests in hotels in Houston. I have no idea where you are getting 14-15% cap rate for hotels in Houston, unless they are really low end independent properties located in bad areas.

You may be confusing cap rates in the shale gas areas. The hotel cap rates in these areas tend to be 15% and its understandable why. When the oil/gas runs out, the hotels will lose a bunch of room demand.

Underwriting hotels is based on a mix of ADR and occupancy, also known as RevPar. You want to have a STAR report, which essentially outlines how the competition is doing in that specific market. Then you need to budget out your expenses, everything from breakfast costs to salaries. You eventually get your NOI and pay your purchase price based on the cap rate you feel is sufficient. However, in the hotel industry, given that NOI is highly dependent on cost management, many use GRM, which is the gross revenue multiple to determine the price they want to pay. This is more of a back of the envelope calculation, but is actually more common than the cap rate method, which can be skewed due to expenses. For example, a hotel doing $1 million in revenue might be worth 3x GRM to someone. Thus someone offers $3 million for it.