All Forum Posts by: Matthew Ryan

@Arvind V. - You need a securities attorney to help you with the fund formation. Given the confines of OZ's you want to be sure that you're doing this right if going through all the effort. My understanding is a true "fund" or open ended or closed fund structure can cycle assets and re-invest so long as they do so within 12 months. But it's all about the structure and intent of your fund which only a securities attorney can help you set-up. 

@Natalie Hahn - That's a difficult question to answer. The main reason is rent growth has exploded in the three major urban cores Oakland, San Jose and San Francisco since 2010; averaging 6.25% YoY according to RealPage.  It's easy to say that these are supply constrained environments and that rent growth will continue to take-off but the truth is, so many are already paying 30+% of AMI on rent. So whose to say this trend continues in the future?  I think the markets you're looking at will continue to see rent growth but one would need to look deeper into supply delivery of new units vs. deman (job growth) plus rent prices relative to AMI (area median income). If rents are still affordable in these areas and supply isn't outstripping demand, I'd say you have  good case for investment in new construction product or even value add deals. But again, really based on what your return expections and needs are.

@George S. - Just glad to hear they were helpful. Let me know if I can help further. 

@Natalie Hahn - What type of returns are you chasing? That's going to dictate which market is right for you...

@Sunil Kapoor - 

After 10 years capital gains tax is reduced 15% - After 7 years, if you invest in this tax year, the tax is reduced by 15% and is due in 2026. 

Returns don’t seem to be as good as a rental property - What are you comparing this to? A turn key rental property with in place cash flows? What type of return metric? IRR or Cash on cash? A deal in OZ's should provide a competitive return without the OZ.

I may have a 2-3 year wait until the Fund generates income - Yes and no. Our fund has properties stabilized in 18 months but we're also doing heavy rehab projects. It all depends on the project. 

I'm considering exiting our MF project and putting that into our own OZ fund because (a) I believe in the product focus and (b) I think there will be better buying opportunities in the next 8-12 months and OZ gives me the flexibility to look for those deals (180 days to allocate, 30 months to complete). 

@Andy Pillinger - You have to increase your basis in the propety by 100%. In laymens terms, you buy a building for a $100k and assign $70k to building, $30k to the land. You need to make $70k worth the improvements to qualify for the tax benefit. If you're developing land, it's whatever your basis is in the land (but don't quote me). As others have mentioned and I'll recommend; get an attorney to help you if you are looking to take a capital gain and invest in OZ's. Or you can look to invest with the gazillion other fund managers or syndicators who are chasing OZ deals. 

@Cooper Marcus - Small MF would only make sense if you're able to put a lot of money into the project and increase density. In higher cost areas, you can also make heavy value add projects work; not just development though some might consider that level of rehab "development." You could act as a finder, but unless you have specific market expertise in an area (or connections), I don't know that you'll have a competitive edge. You can set-up your own fund but it's costly, and you must do it as either an open/closed-ended fund or syndication. For the syndication, you could recruit capital into a fund (or place your own) then purchase one asset with the money from the fund. That's the simplest way I can put it; obviously, a lot more goes into it that requires a securities attorney who's done an OZ Fund formation start to finish.  

@George S. - I own a Triple Net Industrial and I will say a few things that I don't believe have been covered yet:

(1) Anything NNN in Industrial or Retail you have to be a sector expert for the prospective tenants. You have to KNOW their business. SWOT. I just came back from an investor summit where every syndicator who does retail NNN (including small markets you're looking at) made an extremely compelling case for the strength in retail vs. what the news is covering. They're having a hay day because everyone thinks the market is collapsing and it's creating massive buying opportunities. They know their tenant as well as anyone. I think there's incredible opportunity for triple net from a cash flow (and overall return) perspective however I think it takes a very experienced sponsor or investor to do them well and with extremely conservative underwriting standards.

(2) ST cash flows are more supportive than some traditional MF and due to the LT nature of the leases, you don't always have the turn and burn you get in MF. What I mean is MF investors typically like to get in and get out. That creates capital events, paperwork, hopefully profits but then taxes if you don't complete an exchange. 

(3) I second the cap rate comments (way too low) and I'd second shopping other syndicators or fund managers and get a better handle of the industry at large. 

Best of luck to you. 

@Rashmi Nigam - Really about your cashflow vs. your equity gains. Looks like you're at a 1.4X equity multiple. Do you know what your IRR would be? Also, any additional capital you've put into it? Proceeding with rent bumps? Considered your return on equity (Cash flow net of debt service divided by equity interest)? Are you the only investor on the deal or do you have partners?

@Ryder Meehan - Depressing. With Scott Weiners SB50 potentially out of the policy framework again the picture looks more and more grim. I agree for any type of cash flow, SF is a no go.