All Forum Posts by: Shane Melanson

Thanks Jeffery- yes, I know the active brokers in the area.  If possible, would like to deal direct.  

I'm looking to sell my 21 unit apartment building in Edmonton AB and wanted to see if there was a broker or agent that someone here would recommend (in Edmonton Alberta).

I have interviewed the big shops, AY, CB, JLL etc (I have worked at many of them) and I don't believe they are the right person for the job.  Would like to find a hungry agent, who's going to role up their sleeves and market and sell the property.

Willing to sell direct, if a buyer came direct.  But, because I'm not in Edmonton and would prefer to find someone who has the connections with smaller mom & pop investors who like fixer upper properties.  Not being local, has led to struggles on property management and hence someone local could take over and turn the property around.

High level: $2,205,000 (21 units) - $105,000/door (less than we paid for it in 2013 and we invested more than $250k in renos).

Avg rents are $820/month (20-1s and 1-2bed).

Close to NAIT and new LRT station

Going in Cap (on stabilized, we had higher vacancy in the past year) - 5.5% cap.

For the right investor, who lives in Edmonton, this would be a great value add play.  

If you know an investor, or a broker who is interested, please contact me.

thanks,

Shane

Yes.  but, you'll need preleasing (not just an appraisal) 

@Rich Hupper - I don't put a lot of credit on market studies.  They are nice- but, like appraisals can be manipulated.  I'm only interested in tenants and offers to lease (or sell).

So, yes- I would connect with a few retail leasing brokers and see why they want your business.  If the top guys/gals want to lease it- you're in good shape.  If not, they likely know it's going to be a tough listing.  Which happens- but, at least you know.

Working with brokers is  an art.  I think most here will agree (I was one so I understand the love/hate).  Your leasing agents, the good ones, will work their *** off.  But, if you get a lazy one- you're stuck.

Make sure you find someone with experience in the area that can execute.  

But, I wouldn't worry too much about market studies (my personal opinion). 

Good point Greg!

HI Hiren,

Are you looking for MF or commercial?

If MF- Michaels spreadsheet is very good (complex- but great).

If commercial- retail, office or industrial, I don't think that spreadsheet would be helpful.  Commercial properties have different ways OP costs are paid.  You also have TI's and turnover that differ from MF.

I have a simple, back of the napkin spreadsheet I use.  I'll link to it below- hopefully the link works:

http://bit.ly/CREspreadsheet

Hey Rich,

A few thoughts for you:

When looking at land to develop- I'm focused on 2 primary things (I go into more detail below).

1. What is the zoning - can I build what I think there is demand for in the market (retail/industrial/apartments etc).

2. What is the demand?  How deep is the demand?  Can I secure leasing or presales prior to removing conditions?

How I do this- I'll invest $5k+/- for an architect get me renderings and plans.  I'll have a commercial broker (for commercial) go the market and pre-lease.

If it's retail- I like to have an anchor secured with a lease (subject to DP/BP) prior to going unconditional.

Next- you're asking about working with a GC and getting bids.

Without plans, you will have a hard time getting real numbers.  

They should be able to give you costs, based on price per sq.ft on building, base building, soft costs, site serving, site work, grading/filling (assume you have geotech), permits etc.  

If this is your first deal- find someone locally who has done what you're tying to accomplish and ask who to stay away from and who to work with.

From experience- there are many architects and GC's in the world but not all will be the right one for your project.  Relationships are key in this business.  I've learned the hard way- hopefully you can avoid that.

Below is a post I wrote a while back and might be helpful.

1st. I buy the land outright- with cash. As I syndicate, this means, I raise the money from my investors and close on the land.  You suggested you're closing with a private lender.  Nothing wrong with this- BUT, private lenders typically don't do a lot of DD.

THey assume you've done your homework and if you mess up- they take back the property.  Are you personally guaranteeing the loan?

2nd. I De-risk my Deal

- I don't buy on spec. So, I've either got pre-sales (in the case of my industrial condos - where during due diligence and prior to removing conditions, we pre-sold 70%).

- Or, I will pre-lease and find my anchor tenant(s). So my downside is breakeven (provided I've done my homework on construction costs).

I generally have my drawings near completion to go in for a DP during DD.

I will have a very good # from my GC on the development at this time (we won't go to tender until we remove conditions and have an approved DP).

During this, I'm speaking with my bank. How much debt can I get? When?

In a development- you're running many process simultaneous - so it's hard to say do this first and this second.

My main focuses:

1. what is the demand for my site (and how much revenue can I generate). I will adjust my site plan and renderings numerous times to accommodate the demand for the market

2. how long will it take? Timing is critical (DP, BP, leasing, construction).

2(b). how much will it cost? Does the deal make sense? Can I achieve the rents or sales required to justify the development (I like 100% ROE, or 35%+ leveraged returns. Development is risky, and if I don't have sufficient buffers and incentives, then the deal is too skinny)

3. What are the risks? what can wipe me out?

4. How much debt will the bank give me and when? What thresholds are required. My bank wants about 65% pre-leasing or sales to advance funds.

5. Once I have this, I raise my equity and then extra. One of the biggest mistakes I've made in the past is raising too little money and then having to go back to investors for more. This is something you'd rather not have to deal with. The project paid out very well still- but, during construction, was stressful for me.

Side Note: You may want to have a commercial mortgage broker with experience in construction financing assist to. They can help you through some of the steps above- what I've given you is the high level on how I look at and do my deals.  

Commercial lenders will also point out some of the pitfalls in advance 

Hope this helps

@Katie Kim - I'm currently doing a 1.6 acre retail development and here's what I would suggest.

Demographic studies are great- but, I the way I do retail developments (and have worked with some of the biggest developers) is they will find an anchor tenant(s).

Give yourself enough time - will depend on many things, deposit money, experience, the market you're in (buyer vs seller market) to find enough tenants that you can buy the land and build and break even at a min.

On my last deal- we secured a gas station and QSR (quick service restaurant) which covers the entire construction of phase 1 and all land.  So, if we do nothing else, we get a 6% return.

If/when we lease up the balance (to liquor/food/grocer) etc- we expect it will be 2x on investment.

They key is to get time.  Find a great leasing agent.  Pay them well and go to work with renderings in hand on what the development would look like.

I always verify demand with a lease in hand.

Hope that helps

Picture of the building below

In my experience you can find lenders (bridge/construction) loans for land once certain thresholds are met.

Are the townhomes being built on spec?

Are they rental or for sale (big difference)?

What is the creditworthiness of the borrower?

What is the track record of the borrower.

I just discussed a similar transaction (on 150 unit townhouse development- for lease) and there were a line up of lenders.  in the 6-8%.

Expect personal guarantees and maybe a 1-2% fee.

Every bank/lender is different.  I'd talk to a mortgage broker who specializes in construction loans.  Not many banks just want to lend on land without a clear exit plan

hope that helps

@Jay Hinrichs - you're right, cash calls are no fun.  We had contemplated it and our investors knew in advance it was a likely outcome (if we couldn't get conventional funding).  We were doing an 1,153 acre resort development with short term leases (banks didn't like the short term nature of the leases- even though it was to our benefit).

Res is a different game- sorry, I can't comment on that. I like the pre-sales/leasing angle in CRE. But see many a res builder/developer do well. Just not my core (although, now that I think about it- I'm looking at 150 unit TH development now). I'm speaking to broker next week on how the debt will work to figure out how much equity will be required on my end.