All Forum Posts by: Steven Gesis

I've been in contact with them and I do wanna do business with them because I like how the kind of work they do with their homes and very responsive. I do wanna do business with them but I agree with the earlier post about they don't really account for vacancies and capex so it makes it difficult to cash flow and that's why I haven't pulled a trigger with them.

One other thing is I'm seeing the area has a pretty high property tax that's making it even harder to make sense of a deal.

Bumping this. Thanks for the update on your interview with them  @Jay Hinrichs . Will you be adding them to your site? Anyone else who has actually purchased from them?

Crossposting this thread in case others have missed it too: https://www.biggerpockets.com/forums/92/topics/493531-has-anyone-worked-with-smartland-tk

I am local to Cleveland and have two investment properties at the moment.  I am in the market for my third and am considering property management and/or turnkey in an effort to maintain scalability since this is not my full time gig.  I began seeing Smartland properties popping up on zillow while doing research on market rents for upcoming vacancies and noticed that their renovations looked very nice and started looking into doing business with them.  They were responsive and transparent in the their pricing.  However, I had several disagreements with their numbers.  First, you'll find that what they consider to be the market price for their properties is well above what the vast majority of the houses in the area go for.  They argue that their renovation is top notch, so the price is justified, which may or may not be true, but but generally the high quality of the renovation does not pay sufficient dividends in the form of increased rent, so the price to rent ratio just isn't there.

They typically advertise a 9% to 13% cash on cash return, but be careful, this is their "first year projection" and in their first year they do some things that I find a it deceptive, such as not accounting for vacancy because they place a tenant prior to closing, and they budget essentially nothing for repairs or cap ex since it is renovated and they offer a warranty.  However, for every other year you will be paying these costs or at least needing to budget for them, and they will likely take away all of your margin.  

They also claim that their property management fee is 10%, which is true as long as the unit is occupied, but if you factor in the first month rent payment for placing a tenant and a 5% vacancy rate (about once every two years) then the property management fee is closer to 15%.  This is something that is not exclusive to Smartland, almost every property manger budgets like that, but I think it's deceptive and can be a big deal when you're already dealing with thin margins.  By the time I run my numbers on Smartland properties every single one of them loses money.  In my opinion, they are treating  houses in lower cost neighborhoods like medium to high end flips, but selling to investors, which I don't believe is a viable business model.  The high sales price eats into the margins in a way that doesn't work for investors.  I think they would be better off just selling to owner occupants.

@Jay Hinrichs has a website you should check out that is evaluating turnkey companies. Best of luck

Anyone worked with Smartland in Ohio? 

I am asking both in terms of their turnkey products and in general how competent they are and trustworthy. 

Thank you

Quote from @Chris John:

@Wesley Leung

In my opinion (and I know what that's worth), your tone isn't really normal for biggerpockets.  I'd save this for twitter, reddit, or whatever.  @Carlos Ptriawan is a gem on these boards and deserves more respect, even if you don't like his answers or agree with him. 

I've never participated in a syndication (and probably never will), but are the syndicators that follow through and produce for their investors also scammers?  Or just those that come up short?  I mean, I guess I'm asking if you can imagine a world in which they thought the investment would come good or do you think they were cynical from the get?

Jay, we will define these folks as they work through this time - I keep saying this to everyone, we will all see who comes out the other side - As an established operator, we will see who stands up to this market and those who do will be victors and have ample buying opportunity. 

To call syndicators that made a bad bet or a business model that is wobbly to failing Scammers is just simply the voice of someone with not a lot of experience in the business.. Scammers are premeditated thieves.. Our syndicators that are having issues are hardly that.

All Real estate has its inherent risks full stop.

What will define these folks is how they work through the tough times.  @Brian Burke Brian has some very deep experience in the space in good times and bad. I think what we are seeing is with most of these folks having these issues and now with the internet these issues are broadcast wide far.  I would venture to guess most of these companies we are talking about on BP right now are all led by GPs that started in syndication Post GFC and to compete they took the same play book as others starting out.. And now that playbook is showing some significant weakness's or failures.

But to paint these syndicators as Scammers and Crooks I think is simply an ignorant statement.

Quote from @Jon Zhou:

1. all LPs must participate 
   

If this capital call is not successful, it would be a total loss of capital for both Class A and Class B.

• (Joe & Frank) already extended a $2.9M interest-free short-term loan (that) must be repaid promptly to maintain compliance with loan agreements and ens
  

Basically, you will be bailing out Joe and Frank. 

Seems they could recharacterize their $2.9M from a loan to a capital injection to meet lender requirements, but instead they are 'asking' (threatening complete loss of your investment) for you to repay them. 

I'd want to hear how the bail-ees have reduced/refunded their fees in good faith as contributions to the haircut you are all facing in these messes.  I'd ask the same of any sponsor/deal facing similar.  

it's very common these days for gp syndicator to take asset as hostage ; but in mathmatical probability, is that the chance you would be wiped out this year is 97% ; if you send 20% , your chance of being wiped out two years from now on is like 80%. Two years from now I bet they would say 

"I am sorry my LP friend, the situation is still not improved and all your investment is going to go zero for this asset; but please get excited, because, we have new investment offering for 15% IRR and 7% COC, this is the best location on earth"

Quote from @Brian Burke:

Quote from @Carlos Ptriawan:

------------------------------------
My question to @Brian Burke and @Chris Seveney and @Scott Trench :
1. Don't you think the lender is playing with free-wheel assets (for lack of better word), lets say borrower use 80%LTV and cap rate went down 20% so now it's 100-110%LTV. What's really the math logic for the lender to charge the LP $20 million, $40 million or even $1 million ? it seems for me the asset (as long as the valuation remains between 100-110%LTV) becomes a hostage at certain times.

In residential, it's easy to understand that the bank could help the situation because the gov. is intercepting and giving help to the borrower so loan modification is possible, but what's the mechanism in CRE case?

2. If that's the case, then.... as LP we donot care about who is managing the asset, but don't you think it's always safer/better to invest directly to the lender? with their reserves, their risk is very minimal (especially in multifamily asset class).

 @Carlos Ptriawan I’ll answer as best as I can from the perspective of a borrower (I’ve borrowed on bridge debt way back in the day), GP of 4,000+ units (75% of which I sold in 2021/2022), LP (I have passive investments), and lender (a mortgage banker I co-founded did over $2 billion prior to selling in 2022). 

With the exception of a few “loan to own” shops, the lenders don’t want these properties.  They don’t make loans hoping the borrower will fail.  They might not always make the best decisions, resulting in failures, but some of those decisions were driven by bad data (whether from the borrower, appraiser, inspector, or whoever).  And some of these lenders just did a poor job because they got caught up in the same unjustifiable market euphoria as the borrowers.

But now as those bad decisions or incompetence or inappropriate market enthusiasm rise to the surface, most lenders have only one goal:  to get their principal (and hopefully interest and costs) back.

So as it relates to negotiating an extension with a borrower…these are individualized conversations with ala carte selections, not a prix fixe menu.  The lender knows that as long as the GP has some thread of hope in saving the deal, or just saving face, they have a fish on.  What the servicer will do is figure out how much they can squeeze out of the borrower in exchange for kicking the can down the road.  $X principal reduction gets you X extra months.  Both the GP and the lender can tell their investors that they won.

To your question on how this is calculated, there’s no math formula, instead it’s more like that scene in National Lampoon’s Vacation where the Griswold Family Truckster gets repaired at the only gas station in the desert.  When Clark Griswold asks the mechanic how much is the bill, the mechanic looks at the gas station attendant, they both laugh, then looks at Clark with a serious look and asks Clark, “How much you got?”.  Clark says “you can’t do that, I’m going to call the Sheriff.”  The mechanic laughs even harder and whips out his Sheriff badge.

These are very very interesting topic related to distressed debt. I checked from one of the CRE CLO loan issuer earning call, they said the following :

....
Compared to the peer group as it relates to rent growth, our 2020, '22 vintages benefited from our proprietary GEO tier model, which ranks markets 1 through 5, 1 being the best with projected negative absorption a major factor. Recent data shows significant dispersion in rent metrics with supply influx in overbuilt markets causing mid-single digit rent declines. As of March 31, 91% of our originated portfolio is in markets ranked 3 or better. Overall, multifamily industry prices are down 16% from '22 peak with an additional 5% forecast for the 2024 bottom. Given our going-in LTV of 62%, these changes result in a portfolio mark-to-market under 100% versus office where a 50% decline has created over 100% LTVs.

We do not believe the increased delinquency in our multifamily portfolio is indicative of further principal loss.
The financial effect will be short-term earnings pressure for the interim period between defaults and modification, forbearance or refinance. Unlike other CRE sectors subject to the vagaries of the regional bank and CMBS markets, multifamily benefits from the government put with $150 billion of annual GSE allocation providing a pathway for takeout of bridge loans requiring additional time to execute a business plan. Across the $1.3 billion of our loans that reached initial maturity over the last 12 months, 42% paid off with 90% of the remaining loans qualifying for extension.

......So you're right when saying the capital cost to do loan modification is very custom , in wolfstreet the author mentioned how one JV can continue 4% rate ; but in most other MF case, the new family loan is 9% ; it seems it's dictated more on how lender positioning their own capital and CRE CLO positioning. This is very sophisticated.

So from the CEO earning call above I can summarise:
- we expected the valuation of MF to be down around 21-24% from 2022 peak
- the aggregate MF LTV looks like is around 90-100%  LTV from 62% during original issuance 
- It seems Gov. is actively participating in helping bridge lender to do loan modification to offset the losses.

Also, this information from the Cred_IQ financial analyst is relatively have a good insight :


nonperforming loan backleverage has also become increasingly interesting. Loan to acquisition cost varies widely but is typically in the 60% range +/- 10%. Terms range from SOFR +400 for a relatively low leverage note on note product to prime +200 with a 10.5% rate floor for note buyers seeking 75% leverage. Origination fees are typically one to two points for a two year term with extension option.



my opinion: It looks to me from a reward/risk perspective, between now to 2027 could be one of the best year to invest in distressed multifamily debts.