All Forum Posts by: Serge S.

To say that NOI was not effected in the last recession is like saying there will not be another recession. In the SFR space rents were actually very stable. In Arizona, multifamily bad debt was very high. There was no rent growth and there were negative year over year rents. Vacancy was over 10% in most secondary markets, those markets generally were left for dead. People were purchasing on multifamily on bridge debt pre crash and found themselves unable to refinance. Capex improvements capitalized no value because population growth ground to a halt and there were no new jobs to absorb. This is a very relevant question today as people are once again saying rents will never decrease, population will always grow and the market will never adjust and overbuild. Don't believe the hype.

@William Walker interesting deal and congrats! Have you and your team done a reposition of this magnitude before? There is a lot of heavy lifting here. So average rents currently are $500 and your pushing them to $800 is that correct? What is your projected exit NOI/Cap rate? Do you guys property manage in house or use professional PM? This kind of reposition would take me 3 years realistically, wondering your projected hold period.

@Chihiro Kurokawa I agree with your statement that they're promoting themselves on podcasts, in person and online as syndicators and implying that they're taking deals through the cycle when in fact they're raising capital and then building little or no asset management experience. As an investor in syndications myself, I'm not sure why I should or would settle to invest my money on someone who has not managed or owned through a cycle. There are very seasoned teams out there, you just need to know where to look.

@Jay Hinrichs there is value add in every market but unlike yesteryear when value add meant buying at half of rebuild cost and pushing rents a modest $100 yielded 15-20% cash on cash on the hold, today its forcing rents up to top of the market (and historically adjusted highs) and hoping and preying that those rents stay there and continue to grow (not to mention interest rates). So its more of a bet that current conditions will continue and IF they don't the huge capex gets no return and the hold gets pushed to 7-10 years and into another capex cycle. Quite a different value add indeed from the 2013 guy that bought on 30% of the 2019 dollar.

I am seeing a lot of syndicators chasing limited deals but no longer seeing the high net worth guys out there closing on 100+ multifamily. This has been quite a change from the early 2010s when the high net worth guys were buying and syndicators where fairly dormant, at least in my Arizona market. I know some of the guys that were buying back then are now today's sellers, you see it all the time in the transaction activity. I'd love to hear what kind of national deals people are working on and closing. Are you buying or selling??? 

My last deal was a 128 unit C/B class, $4.2M PP, secondary market, $$700k gross potential rents at close May 2018 and $1M today. On going value add will push that to over $1.3M gross and $700k NOI. I do not underwrite anything like I would if I was syndicating and the debt I use is recourse local lender. I'm selling all my SFR stock, that was great while it lasted but that return on equity no longer makes sense.

@Brian Burke hit the nail on the head here. I have not been on BP for some time but this post caught my eye. Yes there are challenges finding a deal today. Yes your only as good as the dumbest money out there. The good news if investing for yourself, you only need to do 1 deal every year or two and if your word is good and you have done deals then your broker network will find you that. For most syndicators 1 deal a year will not keep the lights on. Brian talks about his deal flow process and "sensitivity" analysis. For those of you that have only been in this game within the last few years, listen close to what Brian is saying and read between the lines, you won't get better advice. This has been the best 3 yr stretch in perhaps the last 30 years to be a multifamily landlord. If you purchased anything over 3-4 years ago then congratulations, you most likely are sitting on equity regardless of your operations. 

@Joel Owens makes an interesting point about chaser syndicators. They will be leaving a trail of tears over the next 4 years. Buying at a sellers in place 4 cap, hoping for a year one 5 cap, $1M+ in capex and promising to stretch rents $300 on top of the the 5 years of the past rent growth .... sound familiar? This is a great strategy ... for 2011.  The last $100 rent bump is indeed the hardest to get and there are numerous "side effects" of having rent in the top of the submarket. Pushing a C class $300-$400 is even harder. If and when rents get soft and vacancy rises that $300 rent bump becomes $100 + concessions and in this scenario the $1M+ in capex was just about worthless. Now your 5 year hold becomes a 7-10 year hold and before you know it your in the middle of another capex cycle and the market no longer values your 10 yr old roll on laminate flooring or dented stainless steel appliances. You are cash flow negative for the first 1-3 years yet accruing preferred returns. AND on top of that your betting on stable interest rates AND hoping that cap rates do not reset to historical norm spreads over interest rates (we are not currently at equilibrium). These are the bets that these first time syndicators are taking. But why not take that bet, what is the Sponsors down side? He got his front end fees and doesn't have a hard fought 10 yr reputation to squander. The thing that I do not understand is with guys like Brian out there, why on earth would someone roll the dice on someone's first or second deal? With other asset classes in different stages of the cycle, why does it have to be multifamily? 

Welcome to Lima. Talk to the resident Lima expert Ben Leybovich He may have a home or a portfolio to sell you before he bolts Ohio.

Beware @Ben Leybovich is on the prowl for 4 plexes in AZ now ... but no need to worry you can compete with Leybovich @Carlos Gonzalez. Ben only buys what does not exist and he can't buy everything:)

In all seriousness, a worthwhile 4plex in Maricopa county does not exist on the MLS or from a wholesaler. You will need to create that deal. Also, beware of the older, small studio/1 bd 4plex setups near downtown. Transient tenants w very little room for rent growth. Small multifamily is generally a tough play at anything close to retail there will be no real cash flow. You would need to buy a very specific type of asset. I'd consider staying w SFR stock or looking at Pima and Cochise county. Maricopa county is no longer the most viable cash flow market, equity and appreciation maybe but cash flow is difficult to source.

@Brian Burke interesting to see the follow on posts. This is a deal indeed only question is where is @Ben Leybovich and why is he not finding reasons not to do it?

@J. Martin - count me in and I'd love to chat on the panel. I'll make sure Leybovich makes it out as well.

Ben Leybovich TrumpU as is as much of a fraud as the Donald himself. Not a reasonable comparison to a public university. There is intrinsic value of a public university education. Learning how to carry yourself amongst your peers is just one example.