All Forum Posts by: Ben Leybovich

None of us know what will happen in the future. All we can do is analyze the fundamentals. Population, jobs, income, current supply, future supply pipeline, etc. We formulate our opinions and then we wash them through the prism of historical precedents and moderate accordingly.

Institutionally, today, I can tell you from speaking to both lenders and equity, the concern is that there is very little spread between Class C assets and those in tertiary locations, and Class B and A in primary markets. In other words, the cap rates people are paying for older and not as well located assets are almost as low as the cap rates for Class A locations/product. Historically, this is the aspect of multifamily that jumps out the most, and most institutional thought I am aware of is leaning toward an eventual realignment of this. Makes for a tricky market for a buyer today for sure...

There is a suite of tools we use. For research, we have memberships to Yardi and CoStar. For investor portal, we use Update Capital. For marketing and communications, we use the HubSpot suite. The underwriting is all done with spreadsheets. And, we create our own marketing decks with google tools.

I am not aware of a single tool that can equally well handle all aspects. What we do is costly and likely overkill when just starting out, but hope this helps.

The challenge is that you may not be ready for a partner. It's a misconception that you can "find" a partner. You never find a partner - you attract a partner. It's a very marginal shift in thinking, but it's huge.

That said, what is it about you that will attract a partner? What is it that makes you the ying to someone yang?

Mine may be an unpopular opinion, as it so often is, but I think you need to focus on doing as much as possible to complete yourself, presuming you don't and won't have a partner. You learn as much as you can. You do as much as you can. Good luck!

 That's a really good question, Jermaine. I'll begin by identifying a key element in the way WhiteHaven interprets our mandate - delivering the highest return possible on a risk-adjusted basis. The main element here is risk. We know what our return hurdles are because we identify those before we enter the transaction. Risk, however, is not so easy. 

In any transaction, there are 3 factors that define the risk profile: Location, Vintage, and amount of Value-add. So, in order to have some mechanical control over market risk we can improve the location, improve the vintage, or improve the asset. Obviously, we cannot force the location or vintage to change, hence improving the asset is all that's left. 

Value-add = counter-risk mechanism.

Thusly, as we run through the value-add program we continually evaluate the remaining value-add relative the risk of keeping the asset, and we eventually reach an inflection point whereby the remaining upside may not be worth the risk. Most important risk to understand is the unknown, which is difficult to qualify or quantify. While hindsight is always 20/20, but relative to risk, we don't know what I don't know, and at the time, we thought we'd made enough money in this deal and should take profits. We never want to get gridy. We can never lose money by taking profits. So, what did we do?

We sold Haven at South Mountain and moved this money into a community in Arrowhead called Haven at Arrowhead (Strayhorse Apartments). This community is obviously much better located, and being 1998 it's much newer. And, while the renovations now are very Class A, there was/is a ton of value-add. To give you a sense, the unit depicted in these pics went from $1,250 prior to renovation, to $1,975. And, this floorplan is now going to over $2,200.

At the moment, we are currently under contract for another community in the same location. This one is even younger, being 2007 construction. And, also has a ton of value-add. 

So, what we are doing now is cycling the 80'es stuff in transitional locations, where we've done very well, into Class A locations. And, by doing so we are shifting the inflection-point math. Would I want to keep these two assets past value-add completion? Perhaps, considering they are newer. sit next to Arrowhead Town Center, and a few miles from the TSMC site. 

Long answer, but there is a lot of perspectives here. Hope this makes sense.

Tomorrow's insanity is likely to be even more insane :)

The reality is that this number, the reversion, is often taken out of context. What is the cap rate reversion intended to do? To underwrite risk, right? Well, in order to underwrite risk we must first identify some type of a risk hurdle or baseline. If I am operating today in a 3 cap environment, but I know that in 2012 at the bottom of the cycle a well-operating like-asset could be sold at 6 cap, then by reversing 150 bps to 4.5% I am underwriting at least 50% of the risk of a repeat of the great recession. However, if I am operating today in a 4.5 cap market but I know that like-assets in 2012 sold for 10 cap, then reversing by the same 150 bps to 6 cap does not come close to capturing the downside.

Thus, it's not the reversion itself that is important. We must reverse enough to underwrite enough of the risk so that we can sleep at night. The actual amount of reversion is not an in-put - it should be the result of the risk analysis. As such, there shouldn't be a hard rule. In some markets and asset classes, 100 bps is plenty, while in others 300 bpts may not be enough.

Brokers have two objectives. The primary objective is to make money by selling property. The secondary objective is to work with people they like. So, you will best answer your global question by answering these questions:

1. How can I make a broker believe that I am a real buyer, capable of executing transactions?

2. Why should a broker like and trust me?

The biggest issue with cross-collateral like this is selling one of the assets under the umbrella. What the lenders don't tell you upfront is that should you choose to sell one or two out of the four assets, simply cashing out a portion of the mortgage associated with the properties you are selling may not be enough. The bank will most certainly appraise the remaining properties in the blanket and may deem the value of those to not be sufficient to collateralize the remaining debt and force you to pump more cash into the deal.

 It's really ridiculous out there. I've had people tell me that other sponsors can push up 100% of their investment dollar into Y1 as a loss. I lose investors all the time who chose to go for this nonsense.

But, more than just stupidity around deductions, just because I can give the loss to you doesn't mean you can use it in the year I give it to you. No one seems to want to talk about that. And, more importantly, have we arrived at a point when no one is able to make any freaking money in real estate so that the only thing left to talk about are the losses? The validity of an investment is the investment itself, not the losses. I really hope people aren't leaning on the losses to qualify investments.

Yes.