All Forum Posts by: Khizar Hanif

@Marc Alberto

See you there bud

@Joel Owens

The developer is well seasoned, having completed 30+ deals all focused on retail with successful exits on each deal. Their properties are all pre-leased and total term from start to disposition is about 24 months. No concerns on financing and ability to complete the deal. Projected numbers are accurate but I will confirm with them specifically on the tenancy.

They do not need my equity to do deals. They are, however doing more syndications now than they have previously done, so it would benefit them to build a conduit to multiple investor networks.

The deal for the LPs stays the same as far as returns go. I am trying to figure out how the compensation should be distributed amongst the sponsors. If I’m going to raise $866,000 from my investors to bring to this deal and the developer is going to carry it through to completion, resulting in a $770,000 potential profit for the sponsor group (myself and developer), how should that amount be distributed?

@Taylor L.

Correct-the developer doesn't have any skin in the game. That's definitely something I will require to move forward. The IRR, cash on cash, and annual return are all desirable and constant regardless of how the compensation is distributed amongst the sponsors. My main question here is how should the developer and myself be compensated according to each of our roles and responsibilities?

Hey all, 

I am looking for some advice on how to structure a partnership with a developer. The developer will be doing all the "work" from identifying the site, land acquisition, and bringing the project to completion/disposition. I will be bringing all the equity or "money" to the deal-by raising capital and perhaps investing some of my own into the deal-ideally raising 90% and investing 10% of my own. 

The developer wants 50% of the equity as their ownership while they will be giving 50% to the equity ownership/investors. Note-they are owning 50% as their "sweat equity", and will not be contributing any capital. 

At disposition, 50% of the net proceeds will be distributed to investors and 50% to the developer. In addition, the developer will charge a developer's fee, administration fee, and a guarantor fee. 

The developer is the builder, so we cannot ignore the fact that they will be marking up their construction cost and making a nice profit there as well.

I am tearing the deal apart to figure out how much the developer will be making and how much I should be making as a syndicator bringing capital to the table. 

Here is an example of a deal:

9,200 sq ft Retail Development

• $3,400,000 Total capital required
• $866,000 Equity (raised by me)
• $2,534,000 Debt
• $4,400,000 Sales price 
• $220,000 Closing costs
• $2,534,000 Debt repayment
• $80,000 Developer fee
• $80,000 Guarantor fee
• NET FROM SALE $1,486,000
• $866,000 Equity repayment
• $138,560 Pref for 2 years (8%/year)
• $481,440 Remaining funds to distribute
  • From here 50/50 split to developer and investors
  • $240,720 to developer
  • $240,720 to investors

43.7% total return on investors equity

Now, for sources and uses:

• $85,000 Architect/engineering 
• $65,000 Permits/Platting
• $1,400,000 Construction costs (this is where they would be squeezing some nice juice for themselves)
• $50,000 Administration fee
• Other sources and uses but not going to list all...

At a $1,400,000 construction cost, and with the permit/engineering/design fees I would expect a ~$400,000 profit for the builder. 

• Taking all of this information, the developer will be making ROUGHLY...
• $400,000 Construction profit 
• $80,000 Developer fee
• $50,000 Admin fee
• Going to leave out the $80,000 guarantor fee since that can go to anyone who guarantees the loan
• Total- $530,000 before the deal even sells
• $240,720 additional profit after the deal sells
• TOTAL $770,720 profit for the developer on this deal
• $850,000 if they guarantee the loan.
  

Now, out of the $770,000 that the developer is making on this deal, how much of that should go to me? I would be bringing all the equity, and essentially increasing the developer's resources and network to tap into for future deals, which is valuable in itself. The developer wouldn't have any involvement on the investor's side, I would be managing the investors and relations. I'd like to determine a fair structure for this developer and myself to create a healthy and symbiotic relationship and start doing deals together. 

Any advice/ideas/negotiation points would be appreciated. Thanks!

@Josh C.

The broker knows us pretty well, which helped us get the deal. Additionally, we probably had the strongest financials out of all the offers. The deal looks good to me so far and is worth pursuing, I’m not thinking about it in terms of it being fishy. That’s what due diligence is for. If something comes up and we don’t want to deal with it, we’ll walk away.

Thanks for all the feedback! Through our rapport with the broker we got the property under contract at 750k and a 30-day due diligence period. 

After touring today, we realized that there is still room for improvement here and there, specifically to the exterior facade of the buildings. Additionally, the units are sitting on an acre of land with ample parking and about 15,000 sq ft of undeveloped land. We could potentially add 8-10 more units in the future, if the numbers work. There are 3 building (4 units each) with significant space in between to add amenities such as a playground for kids, BBQ area, etc to make it feel like a community. Making it feel like a community will make tenants feel more comfortable and improve the likelihood of them staying if and when we decide to make incremental rent increases. 

As far as expenses go, from what I have seen it's fair to underwrite a renovated property at 40% of income. Outdated properties would be closer to 50%. Is that a fair assumption? We feel it's very possible to operate it at 40%.

What about taxes? The tax assessment currently is ~300k. How can we keep that low? If we get assessed higher, it can really hurt us. What do you guys do to keep taxes to a minimum?

This is my first acquisition of this type so any further advice, specifically things to look out for during due diligence, would be appreciated!

Hey all, 

Need some deal advice and some creativity. Have a 12-unit that I'm wanting to offer on. This deal is already stabilized, no forced appreciation opportunities here, which I am OK with. It seems like a solid deal I can just buy and hold.

Asking 810,000

100% leased, renovated in 2018, strong location with tenants who pay on time. 

Income 110,000

Expenses ~~40,000 (about 40%)

Debt Service 36,000

Cash Flow roughly 35,000

Deal is off market and has multiple offers. What are some creative ways I can win this deal without overpaying?

Thanks all for the great advice. @Michael Ealy and @Greg Dickerson great valuation methods, I like the idea of working backwards with a cushion. Going to discuss the status of this deal today with broker and will submit an offer. I'll do some practice with these methods so that I can be prepared for the next opportunity that comes around.

Any advice as to offering on a 50% vacant multi? Owners purchased back in 2014 and did some repairs to everything but the units themselves. 2016 was stabilized and started to fall off thereafter. Went from $140k NOI (2016) to about $40k NOI (2018). Trailing the same NOI this year (due to property being half vacant). Reason-property management was stealing from them.

40 Units

May be a good opportunity to go in, rehab, and lease up. Market is pretty strong. I definitely want to submit an offer, but not sure where to begin. If I value the property as is today at a 6.5 cap (market rate), using $40k NOI I'm at $615k (15k/unit). It's definitely worth more than that, but I need to come up with a fair offer. I don't think its fair to base solely off of pro-forma numbers, but somewhere in between..after all, it will take me time, effort, and money to get to pro-forma, so I need to factor all of that into my offer.

Sellers are not motivated to sell. They are just considering offers. I did hear they have an offer at $2M (50k/unit), I would just like to know how the buyer came up with that number?

I haven't walked the property yet. I know I should do so with a contractor to determine rehab budget but I would like to express interest at this time, and tour sometime in the next couple of days...since there are offers already. 

What factors should I consider to arrive at a starting offer and what are some creative ways of going about this kind of deal?

 

Thanks for the input guys, we have decided not to offer on this one. Not enough potential for forced appreciation. Gonna keep the search going...