All Forum Posts by: Michael S.

Matt, we are in process on a 6.2 CAP (to investor) stable asset with a fortune 100 tenant through 2030. We do private equity placements within our investments but in this case would consider a TIC arrangement as the asset is nearly identical to your requirement. We'd assure you're whole on your fees. Happy to chat.

Any reoccurring business model will be fine. Such as insurance companies, accountants, lawyers, architects etc.

Yes, it’s effective. Always check your local banks too though.

Online resources are scarce. You're probably pressed for time but I'd suggest William Brueggeman's Real Estate Finance and Investments book. It's pretty advanced and on the expensive side but it'll have everything you need. You could also go the Commercial Real Estate Investing for dummies way but I've found it to be fairly elementary though it might be all you need for a smaller investment.

FYI, due diligence is fairly different for commercial, you might want to pick up Brian Hennessey's 'The due diligence handbook for commercial real estate'.

If you find yourself wanting to get into specifics feel free to PM me.

It depends on the financial health of the other asset in the LLC. Assuming you have cushion in your debt coverage ratio then it can actually strengthen your loan application strength (they'll also look at total debt to income etc) as they'll use some of that extra revenue in their underwriting. Regardless, it does complicate the loan/process and opens up your assets to cross collateral risk etc depending on the loan language which I'd consult with an attorney further on. From experience its easier to work with the same lender on the second asset as you used for the first asset if they're willing to.

As a PE investment firm we separate our investments into separate LLCs each for a number of reasons but not due to lending challenges.

California...

We didn't pursue through our own insurance as they would only cover a portion of the damages compared to going after the contractors general liability as at-fault. The general liability insurance has conceded fault and made some payments, it more so has to do with them delaying us so much on the repair approvals that our rent abatement extended far out as we couldn't lease/fill the units in disrepair. Now after they took 5 months to resolve it, they don't want to cover that many months in rent abatement.

The documentation is clear the insurance company did everything in their power to not pay and short pay.

Hi Steffany,

"Cash on Cash" in the industry is a cash flow based metric, which would take into consideration the cash spent paying the interest AND principal. It is not a right or wrong thing; it is a metric that has a specific purpose and importance with understanding its weakness and strength just like any other metric.

It is a popular metric because cash flows speak to income focused investors. For this reason from my experience it is a metric older investors tend to focus more on. It’s generally only used for the first year or two of an investment (or the first stabilized year) as it fails to consider inflation/appreciation/time value of money…you comparing your equity injection 5 years ago to cash received this year isn’t a fair comparison ratio due to inflation.

It is a fantastic metric for those focusing on income producing properties. To oversimplify it, folks like it because it is simple. If its 4%, and they invest $100K, they should get $4K that year in their pocket regardless of the appreciation and loan pay-down that is taking place behind the scenes.

From my experience folks like 3% or higher in the first year of an investment (we aim for 4 to 5% for our investors). This of course is changing as interest rates are lowering, which is reducing the attractiveness of investors alternative choices, thus they are more willing to pursue a lower cash on cash return than they would have in the past.

Hope that helps.

You need to provide more information for people to give sound advice. $7,500 seems high but who knows how big of a contact it is. Generally a good rule of thumb is to think of it in hours. At $50 an hour that’s 150 hours or more than three weeks of work “talking to the city”. Alternatively, if you haven’t received multiple bids you definitely should. And if you did, compare it to those or ask the contractor to remove it / take it down based on the fact nobody else included it.

This is a unique one.....

We replaced the roof on one of our commercial properties this last summer. The roofer incorrectly cut the internal roof drains while putting on a new roof, we consequently had four separate commercial office suites flood out. We went after the roofers insurance as fault was easy to prove. We permanently lost a few tenants from the incident and waited nearly 3 months for the insurance company to agree on repairs and the materials that could be used to replace things thus delaying getting the units lease and show ready. 

Because of that we lost a significant amount of rent. To date (six months later) the insurance company has only given us the direct repair cost. They have offered to pay pennies on the dollar for the rent abatement which grew significantly, only because they did not process the insurance claim timely. Furthermore they have withheld payment for other direct costs from the incident until we agree to take their small rent allowable. We have local attorney that may be able to handle the situation but I'd prefer to work and develop a relationship with an attorney that specializes in insurance fault as this certainly won't be the last time we need one.

There is a mountain of information at this point showing the insurance companies bad faith throughout the process. They directly caused the rent abatement amount to be so high.

In conventional financing, generally five and above. Nevertheless, we have large properties, and even in that arena, if there is vacancy currently or  potential vacancy in the future (value-add or COVID) they will begin to look at the whole picture, ie, you and your cash flows. In our case we're always having to sign a personal guarantee and they're reviewing our personal financials to assure we can make payment.

This changes a bit in the private money / bridge financing arena where they're more interested in your track record and the LTV, but get ready for 7%+ interest.