All Forum Posts by: Kim Hopkins

Hello Friends!

One of our goals right now is to increase our liquidity so that we can take advantage of any opportunities that arise in this changing market, especially in the case that traditional financing becomes unavailable or the terms become (more) unattractive.

One of these methods is to get lines of credit, which we're doing through HELOCs as well as an unsecured business line of credit. 

We don't need the funds yet since we haven't found any opportunities (which could be a whole different post). However, we've heard that lines of credit were closed without warning by lenders in 2008 if they weren't already drawn out.

One strategy we've heard from people is to draw on the lines of credit now, even though the funds are not needed. However, we obviously don't want to pay a ~6% interest rate on money we're not using.

Some people have said there are ways to arbitrage this debt with short term methods that will either yield a small profit, or simply break even. An example might include hard money lending.

However, it's a bit of a Catch 22. Because it's an uncertain market right now, with an even more uncertain future, we don't want to make any risky investments or do hard money lending, since it's exactly the failure of these types of projects that will potentially create buying opportunities for us in the future. (In other words, if we're betting that these projects might fail, we certainly don't want to invest in them now!)

Two resulting questions:

1. Do you think there is a likely probability that the lines of credit will be closed by the banks if they are not drawn out? (And why?)

2. Can you think of any low risk arbitrage ideas to break even on the interest expense if we were to draw on the lines of credit now, prior to having a buying opportunity in place?

Thank you!

Kim

Hello! Sorry for the delayed reply y'all! I was tied up with, well real estate, duh, aren't we all. :)

Here's where we stand currently. We discussed at length with a very competent attorney. Basically it boils down to these two concepts: 

1. There is a low probability (and zero guarantee) that we would be able to evict the tenant by arguing the subtenant violation. A) the subtenants are now on MTM leases and he could easily cure the default by getting rid of them. B) there is a court case that says permitting subtenants shall not be unreasonably withheld. C) he has a potential case that we were aware of the subtenants and didn't do anything about it earlier. 

2. There is a GUARANTEED 100% probability that if we default him now, after he's said emphatically he has nowhere to go and it would literally shut down his business, that he will be beyond pi$$ed and consequently very unlikely to work with us in the future if he does avoid the default (easy to do per point #1) and remain in the property.

Based on these two probabilities, we've decided to hold off on the default plan, but not discount it for later, and wait for his approvals to come through to buy the building he wants to buy. 

He's in the process of applying for a change of use with the city for the building he's trying to buy. He's received a letter back that his application is incomplete and is working on the revision now. I'm not sure what we will do if he's unable to get the application approved but we talked with a land use attorney and she thinks it's highly probable it will be approved. 

If it is approved, then the leverage should be back in our court since he will not want to pay rent on two buildings and, even if he wants a longer move-out time frame than we want, we should be able to push him out faster since we have the leverage that we will otherwise not let him out of his lease later on down the road. 

I'm hoping for divine intervention here with regards to timing since it would be great to sell the building in the near future and 1031 in the lesser near future when hopefully prices have come down. 

Thank you again for your help and feedback, always welcomed and appreciated!

Kim

Quote from @Michael Patton:

I have a solution for that. That is the problem that had to be solved for asset management. Really should be blind to the PM software. 

Quote from @Kim Hopkins:

Quote from @Michael Patton:

Sorry. Last one sent without my comments. 

is this pulling automatically from the PM system and other software sources so that it is up to date in real-time? Or is there manually entry?

 I have properties in multiple states with multiple property managers who all use different systems. So there would be no way to pull data from a PM system automatically unless I had my own PM system where I re-entered all their data which would be a huge time waste. That's exactly the reason I didn't want to go with one of the big property management software systems people mentioned above. I have an assistant enter this once a month from the PM reports provided (and just a bank account statement for the single tenant properties which don't have PMs). Takes the assistant 1-2 hours. 

 Is it similar to what I built? 

Quote from @Michael Patton:

Sorry. Last one sent without my comments. 

is this pulling automatically from the PM system and other software sources so that it is up to date in real-time? Or is there manually entry?

 I have properties in multiple states with multiple property managers who all use different systems. So there would be no way to pull data from a PM system automatically unless I had my own PM system where I re-entered all their data which would be a huge time waste. That's exactly the reason I didn't want to go with one of the big property management software systems people mentioned above. I have an assistant enter this once a month from the PM reports provided (and just a bank account statement for the single tenant properties which don't have PMs). Takes the assistant 1-2 hours. 

Hey Michael, did you write anything? I only see my post quoted. 

Quote from @Michael Patton:

So I actually ended up building my own. Here's the main dashboard that gives a list of all the properties and all the KPI's I was interested in tracking including rent paid in full, occupancy %, # of delinquencies, # of upcoming lease expirations, # of upcoming lease bumps, and if there are any expense questions from the P&L:

 You can click on any of the properties, and it will take you to the properties Income report. For example for the E 18th property, here is the Income tab. It shows you the rent roll and automatically highlights and upcoming upcoming rent bumps, lease expirations and delinquencies. There's also a Q&A section where you or your bookkeeper can write questions for the property manager for specific tenants. 

You can also click a button to Expand/Collapse filters. This will only show tenants with rent bumps or term dates or delinquencies or questions, and hide the rest of the tenants so that you can easily take a snapshot pic and send to your property manager. 

Lastly, there's an expense tab for each property that allows you or your bookkeeper to list questionable expenses each month from the PM reports. You keep all the expenses with questions (and their answers) here for the whole year so that at the end of the year when you're like, "why was landscaping so dang high for this property?", you can easily go back and look at all the questionable expenses from each month. There's an Expand/Collapse button on this tab as well which will show only the expenses for the current report month if you want to focus in on those or send a snippet to your property manager. 

Would obviously have preferred to use a third party but this accomplishes exactly what I need - a birds eye view of the profitability each month without have to re-enter operational and tenant data into my own system when the property manager is already tracking this information. 

I welcome all feedback! 

kim

Quote from @Russ Kitzberger:

There are lots of systems that are used by managers and building owners

Yardi is the big one for MF.

Argus is the big one for other asset classes

There are tons of upstarts, some are on the CCIM website.

CoStar Real estate Manager
Yardi
The System for property
Property manager for windows

 I looked at these and found that they're mostly geared at property managers, not asset managers. I didn't see a lot of the cross-portfolio-performance I'm looking for. 

Quote from @Michael Le:

If you're talking about asset management software, you can take a look at this. I had a demo call with them recently and it looks like it probably does what you were looking for.

https://www.lobbycre.com/

 This does look promising! How did the demo go? I've never heard of them before which makes me a little cautious. 

Quote from @Michael Patton:

Quote from @Kim Hopkins:

Hello! 

I have searched for this on the forums extensively and online, to the point where I've started building my own and writing the code myself. I still can't believe it doesn't already exist though! 

I'm looking for an asset management software for OWNERS, not a property manager software. I have property managers who work for me. I am trying to manage the asset and the property managers.

Here is the basic functionality I'm looking for: 

1. Property View: Customizable view that allows me to select a given property and view, update, and save information including the obvious facts, plus ownership %'s, reserves to be held each month, property tax/insurance info, purchase and loan info. Need to be able to view, edit, and save changes.
2. Unit / Lease Abstract View: Customizable view that allows user to select a given property and provides a menu for that property of all tenants/units at that property. User can switch between different units. Display shows details for the given unit which can be viewed, updated, and saved.
3. Rent Roll View: Customizable view that allows me to select a given property’s rent roll and view, batch update, and save information. Expiring leases, rent bumps, and delinquent tenants are highlighted. 
4. Property Management Dashboard: Allows me to summarize delinquencies, notable expenses, upcoming lease expirations and rent bumps and send a monthly email automatically to the property manager for a status update.

Everything I've found is either focused on the property management and rent collection or on managing investors. Does anything like the above exist?! Thank you!

 Did you ever find anything?

 Nope, I ended up making my own. Would still love to hear what others are doing though!

Quote from @Bob Metry:

@Kim Hopkins this is a situation many of us have or may become exposed to in some degree so I appreciate you sharing your experience. You may not still be seeking advice but this is what I am gathering from your situation:

Your property is leased well under market value and now is worth a lot more than you paid for it.

Your tenant is taking advantage of his situation by subleasing and likely now subsiding most and possibly all or more of his rent. His sub letters are also possibly paying below market rent. None of the tenants are likely motivated to lease elsewhere as the rates will likely be significantly higher and it sounds like their businesses are difficult to relocate.

Your tenant says he wants to buy place and while that may be the case, at this point, he does not have an incentive to quickly move forward at least from anything coming from your side. Your $100k offer didn't move the needle so that is a good indication that he is not motivated to move.

To me it seems to be in your best interest to get the current tenant out even if your current deal doesn’t go through. If you sell to your current buyer you make your big profit and if you don’t you either sell to someone else or rent to someone else in your currently hot market - all options seem to be significantly more profitable than your current lease. So, I really don’t see any major downsize to loosing this tenant.

To accomplish this you need leverage. Even if it is just perceived leverage. 

If it were me, I would likely try to play the good cop with the tenant and let them know that my “partner” is not ok with the subleasing situation and is now moving forward with legal recourse. This will help you "save face" if you go back to negotiate with him. 

I would actually hire a proper attorney that does commercial evictions in that county and start the process. Even if it is just having them start by sending a letter to the tenant notifying them that they are in breach of the agreement and you will be moving forward with legal recourse (eviction) accordingly. I know you say the tenant will just cure the default but I would not assume that. Again, the sub letters will likely have little to no motivation to move on and even if they do, the current tenant may not be able to afford the lease on his own on at this point.

You need leverage even if it is just perceived leverage and putting him on notice of the eviction will help you with that. Once you gain your leverage you can better strategize on how you can meet your goals by either evicting the tenant and/or helping them if necessary to move on to their next location.

Good luck and keep us posted.

 Hi Bob, wow that was an incredibly well thought out comment, thank you! That really helped to see the facts laid out. And you make a great point about getting the process started even if it's just the first step. And the real key was to attribute it to my "partner". Such a good point. I will call the attorney tomorrow and move forward on this. Thank you!