All Forum Posts by: Spencer Gray

I've switched from Reonomy to Co-Star, I've found Co-Star to be a much more useful tool and worth the investment. 

For our fund we are using a dual class structure:

A class: 10% preferred return , net 10% IRR no further upside, first position to be paid in capital stack

B class: 7% preferred return, 80/20 B/GP, 60/40 B/GP after 18% IRR, second position behind A

On our single class structure we've used in the past, 8% preferred return 70/30 LP/GP. 

@Will Barnard I do not believe most syndicators request, require, or review investors personal financial information if they are investing as an LP. You may have to provide a letter verifying your status as an accredited investor in a 506(c) syndication, but I don't know of too many LPs who would hand over their PFSs and balance sheet to a syndicator, unless they are a guarantor/KP on the loan in which they would provide that information directly to the lender.

There is no KYC "know your customer" regulation for syndication that I am aware of other than forming a preexisting substantiated relationship in a Reg D 506(b) syndication. @Chris Levarek

@Chris Levarek Do you ask each LP the source of their funds? What kind of due diligence do you perform on your investors other than getting to know them, understanding their goals, gauging their experience level, risk tolerance, and ask whether they are accredited or not? 

It depends on the type of loan. Investors use refinance proceeds, which is simply another loan, and reinvest all the time. Many financial advisors would argue it's better to take a mortgage out on your house at 4% to make 8-20% in real estate or the stock market. 

Like most leverage, it increases risk and return. Loans with high interest rates or floating rates also increase risk and should be avoided. 

At the end of the day debt is simply a tool, if you know how to use it it can be incredibly useful. If you don't know what you're doing it can be extremely dangerous. 

If you are not capable of keeping occupancy above 85% during a value-add renovation, assuming the property was purchased stabilized ~95%, then I highly recommend hiring a property management company experienced with a value-add lease up and GC to manage the process. If you want to do it yourself, learn from the PM company, and when you believe you can do a better job than they can, then take over management. 

I would do this if it were just my own money in a deal, but especially if you are raising money from others. 

This will also allow you to focus on what you do best such as finding deals, underwriting, networking, raising capital, etc. Sure you'll pay a fee but that's peanuts compared to another good deal. 

Different class assets behave slightly differently depending on the cause/effect of the recession

That being said the most resistant is a straight down the fairway B class asset that caters to renters hovering around the area median income. People at all income levels can be effected from economic down turns, and if you are catering to the broadest proportion of the population you will likely see residents move up and down the economic ladder through your property, providing steady demand and relative stability. You could still see rents flatline or even decline for 6-24mo, and see increased expenses due to higher rates of delinquency, evictions, resulting in higher turn costs. 

Recessions are also historically followed by several years of strong rent growth, therefore it's important to set up your investment with preservation of principal as a top priority. The best way to achieve that (beyond buying right) is to use appropriate debt (long term fixed rate is best), and have more than ample cash reserves. A value add strategy forcing appreciation can also eventually decrease risk (after an initial higher risk period during renovation and lease up), once rents have been increased and the asset can be partially, or fully de-risked by returning capital via a refinance. 

grayreport.com , based out of Indianapolis but covers US multifamily, real estate, and the economy. 

Short answer is no. You can raise capital from private investors as equity for the downpayment and costs for the project in exchange of a % of the profits. 

Rents and more importantly asset values have risen more than construction costs. The builders I know are building right now or looking for projects. 

There is no harm in having 2-3 brokers provide you with a BOV (Broker Opinion of Value). They will do this for free and it will essentially be an estimate for what they believe they can sell it for and their plan to sell it. You'll have to provide financials, rent roll, and answer some questions, but it's worth it. There's no obligation to have the brokers market it, but I think you'll find that they will be able to get you higher NET proceeds and a smoother transaction. 

Fees are absolutely negotiable and you should be able to get closer to 3%. If they have buyers lined up already and don't have to do a mass marketing campaign, it should be less.