All Forum Posts by: Serge S.

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Fannie and Freddie ordered to suspend mortgage payments for a year, smaller banks expected to follow.

I am perpetually game planning future moves and this exercise inevitably requires taking a position on how the near future will unfold and the best way to benefit. I am interested in hearing what BP users think is about to unfold. Here is how I see it:

Stimulus provides very temporary tenant relief. April bad debt spikes to 5-15%. 

By mid April the banks tighten lending. Bridge debt disappears. 60-65% LTV becomes norm. DSC minimum over 1.5. Cash out refi impossible to get. Multiple appraisals required. Frozen capital until the market resets to new normal.

By summer economic vacancy of 15% becomes the new normal.

Vegas condos in trendy hotels like Signature MGM, VDARA, Palms are selling for $150-250k.

Hospitality assets will be trading on ten-x auctions and $1M will buy you a 100 key Quality Inn in a decent metro like Tucson, Houston, etc.

Multifamily holds on the longest as operators scale back cap ex and race to the bottom on concessions, rent price, etc.

Retail strip centers in urban sprawl suburbs sit vacant no debt market or tenancy demand. 

Syndicators that purchased in last 24 months in "hot growing" markets like Vegas, PHX, at 3.5% cap rates etc get cleared out by 2021. No point to run large capex value adds without the rent bump but can't pay mortgage without the rent bump = disaster. There will be a whole class of very disappointed investors. 

2019 Hottest SFR markets will become worst performing by 2021. Homeowners get bailed out and are allowed to refi and ride out job loss.

Media pins economic disaster on Trump, Biden gets elected and quickly passes stimulas #2,3,4.

Hoping none of the above turns out true but I've seen this movie before. 

@Mark Allen Kenny The reason an eviction moratorium is such a big deal is that it would have an effect throughout your P&L. Bad debt would be the obvious but think through the issues if in 30 days you have 20 tenants in a multifamily paying late with no fees or ability to evict. What about if your raising rents and now don't have the turnover you need or demand? If your shopping for a 100+ unit in one of these markets, what does your year 1 look like now?

Phoenix halts evictions

City after city enacting eviction moratorium. How does a large multifamily owner deal with this and how is it going to effect your business? For me this is a major concern if not the biggest short term risk. A nationwide moratorium would be catestrauphic for the industry although its doubtful that would happen at this point. Most likely will be state to state.

If your buying large multifamily, how do you underwrite year 1 or 2 at this point?

If your in contract to buy multifamily, what changes? Are you as buyer retrading or are your buyers retrading? I'm in at the tail end of a stalled sale and middle of a purchase. Everything up in the air right now.

For those of you that purchased late 2019 at market peak prices and low cap rate, any concerns yet?

We are accessing our percentage of STR to LTR. With the closure of Spring Training and the flight restrictions, we had over 15 cancellations with a loss of over $20k in revenue in a 2 day span. March literally got cleared out and these are the highest daily rates of the year. Want some interesting reading take a look at a recent hotel STR report for a hotel in Maricopa County. The next 2 months will be turbulent for hotel owners. In retrospect, we overshot STR and would have been better served with continued focus on LTR. STR is not capitalized on exit, draws increased management challenges and runs very high expense ratios. So why bother? The wisdom of @Brian Burke, that one he called. 

I have spent time with the local banking community to try to understand what lending looks like in 60 days. How fast we recover will have a lot to do with how banking reacts and adjusts. Term sheets are being pulled and new appraisals ordered in the hospitality space. Lending on the edges such as bridge, cash out refi and hard money will see some changes by the end of the month.

Multifamily communities purchased on sustainable in place Debt Service Coverage will be just fine. Purchases based on year 2-3 100% projected NOI growth may be in for some panic when the bridge loans expire and nobody wants to lend on a "repositioned" 1.1 DSCR pro forma. This is when there will be opportunities. Multifamily in some metro's has been traded far too long with valuations based on tomorrow's performance. I am looking at Mobile home parks and distressed hospitality in the short term and multifamily with an unfinished value add by the end of the year.

Conservative estimate over next 3-7 months is 48M hospilizations, 96M cases, 480k deaths. Rogan Podcast

In AZ they just shut down spring training, this alone would be enough to spin certain cities into recession. I have friends that were scheduled to close on B class hotel assets on sell side and had buyer term sheets pulled a week before close. Financing for hospitality assets in some markets is dry. 3 cities announced eviction moratorium and more to come. If we get a statewide eviction moratorium I do not see my tenants getting out of bed in the morning.

So who are the winners and losers? I think I would rather be a little late than a little early to this party. The economic impacts to RE are already in progress,  just beginning and very real.  I would hate to be sitting on low cap rate assets purchased in the last 6 months relying on heavy repositions and hefty rents.  

@Jack Martin interesting feedback. Are you saying that it is never worthwhile to convert RV to MH space? So when you buy a large park that is primarily MH and partially RV, you wouldn't even consider converting to all MHP. I have a park I am in DD on consisting of 90 MHs and 37 RV spaces which do well but require extra payroll, electric, etc. I don't see how the RV business really is worthwhile and would prefer 100% MHs. What would be your advice in this situation?

Hey @Matt Slakey where in AZ did you purchase and how is going so far? I got one in AZ under contract and have been trying to get up to speed. MH tenant law is different from houses or apartments in AZ check out https://www.azlawhelp.org/articles_info.cfm?mc=3&sc=72&articleid=380

Generally you should be able to evict but there are some hoops you will have to jump through. Good luck.

Hello Everyone - I am an experienced multifamily investor and currently have my first MHP under contract. Never thought I would do it but this opportunity looks legit. This park is 90 Mobile Homes and 37 RV spaces with dry storage, all except 3 MHs are tenant owned and those 3 have notes attached that I am inheriting. The park is owned by an out of country owner who has a seemingly competent park manager who has a lot of experience. It is an older pride of ownership park with lush landscaping and very long term residents. The park is in a unique location in town on the busiest street across the street from a main city park, shopping, Walmart, etc while the competition is a drive away. This park caught my eye as it is in the city where I currently already own 250+ apartment units. My apartment PM has MHP experience and has agreed to PM for me. Just starting DD and would love some advice:

Park is running at nearly a 60% expense ratio on $450k gross income. $90k in payroll split between park manager and 2 part time employees.All city services but no metering in place except for electric on the MHs. Water is bill backed via flat RUBs at about 1/3 of the actual cost. Park is getting killed in utilities - $65k water, $30k trash/sewer and $45k electric from primarily from the RV rentals which generate $60-$80k of the gross revenue (seller financials are terrible and misclassified). The park has a defunct well system which went dry and could be dug deeper and easily reconnected to the plumbing to convert back to well water.

I am purchasing at an in place 8-9 cap on actuals plus a 55% expense ratio. My value add will be primarily lowering expenses with site enhancements and bringing lot rent to current market $425 which is already proven and in place on many lots. Payroll is high primarily due to the RV business from what I can gather. My goal is to convert the RV space portion of the park into either minimum 30 day visits with electric bill back or pour pads and convert the 30 amp into 50 amp service and convert to more MH. I figure this will allow me to run the park out of my multifamily office a mile away using staff already on payroll. Maintenance such as in ground plumbing leaks, grounds and pool service can be attended to by my staff of 3-4 already servicing the multifamily. I'm also considering fixing the well and getting off city water, this would be a savings of over $50k after all the well inspections, service and water testing.

Questions - what is the best strategy for the RV side? Continue as is, convert to more MH sites or change policy to monthly minimum? What is generally the cost of upgrading service 30 amp to 50 amp per site assuming this is a must if I convert RV to MH? What is the best way to submeter or billback electric on the RV side assuming it stays? Direct utility co billing is only available currently on the MH side. Should I consider repairing the well and going that route or stick to city water and implement a better submetering program to recapture more than 30% of the cost of water?

Would love to hear from some of the MHP experts out there. @Alina Trigub what do you think and lets catch up:)

I am a multifamily owner and recently purchased my first park, 140 lots and another 40 RV spaces. It took me a really long time to get over the stigma of owning a park and I can tell you my main reasons for not wanting to go in that direction:

Lack of professional management

Difficulty in financing

Less tax friendly depreciation

Tenant class

Environmental concerns

What I learned is that all those issues can be addressed. I believe the spread between multifamily and MHP yields should be at least 2-4 pts and with the compression of parks finding one that met this criteria was not easy. The value add potential though is very real. Parks are usually owned by unsophisticated investors that leave a lot of meat on the bone. The park I purchased had in place $450k gross in place income and I will have it at $650k in year 1 with very minimal changes. I will also be able to cut expenses by over $100k. On the exit its difficult to project a sale based on a proforma like people do in multifamily but yield is yield and there is always demand for stable cash flow. In a down cycle though MHP are left for dead while people are able to scoop up multifamily at discounts.