All Forum Posts by: Spencer Gray

I've found the best way is by networking. I've connected with people on BP and on linkedin, have a zoom meeting, and sometimes they invite me on their podcast. The only time I've asked to go on a podcast is when the host was looking for people to interview, posting on social media, and then I reach out if I think I can add value to the show. 

If you're active on social media there's a higher chance you'll get an invitation. Offer to promote the episode across all channels before and after airing/posting.

There are also booking agents specifically for real estate podcasts. 

All being said, @Eric Bilderback has a good point, you have to have a story, a message, something interesting and relevant to talk about. Make your objectives clear, your stories and points concise, and always make sure to research and listen to other episodes so you understand the format and know what to expect. 

Almost no lenders will allow 100% debt financing. It's rare to even see anything over 80% today, most deals are DSCR constrained at 65-70% and many (most) lenders won't allow a subordinate loan today. Lenders want someone to have some real skin in the game in the form of equity.

What you can do is raise equity, but you will have to give them upside in the project. 

If what your lender is suggesting you do the promissory note or a loan off the books, he may be suggesting you commit mortgage fraud - so I would be careful.

Are they condos? People do it, but you'll have HOA fees, and possible lack of control of the building if you are a minority member of the HOA. We're actually in the middle of a condo de-conversion in Indy where we bought the majority of units, bought the remaining owners out, dissolved the HOA, and now operate the building as a regular apartment building.

I personally wouldn't do it if you can't control the entire asset, but people do buy condos as rentals all the time. 

I would invest slugs of $500,000 - $1,000,000 into 10-20 commercial real estate assets in secondary and tertiary markets throughout the Sunbelt, Midwest, and Mountain West. I would invest in a combination of single asset syndications and funds. Allocation of ~60% into multifamily including manufactured housing, and senior housing, A and B properties, existing assets, value add and core plus strategies. The remaining ~40% into industrial assets including self storage and cold storage, existing and ground up development.

I would deploy the capital as soon as proper due diligence can be conducted on multiple sponsors in multiple geographic regions, the sooner the better.

I would also meet with my attorney, financial advisor and CPA to discuss the proper investment vehicle to use (LLC, Trust, Individual, etc) and to review opportunities and sponsors.

This is just my personal opinion for educational purposes only and is absolutely not financial or legal advice. 

We have in the past, although with rates as low as they still are assuming debt that was placed pre-covid is rarely accretive for two reasons. 

1: Rates on assumable mortgages from pre 2020 are significantly higher than rates today, although that spread is narrowing on fixed rate debt indexed to the 10-year treasury. 

2. Very low LTVs. The value spread between now and even 12 months ago is huge, a deal from a few years ago is even more. This results in a very low leverage deal, especially if the loan has been amortizing and w/o additional interest only. 

You can sometimes get a mezzanine or a supplemental loan that is subordinate to the first mortgage, however the rates will be higher than the first mortgage. 

The only reason to even consider an assumption in today's market is if there is a high pre-payment penalty that would make the sale free and clear unattractive to a seller.

If you don't mind very low leverage, and there is significant upside that can he harvested when the pre-payment is either phased out or the new value is so great that the pre-payment is in-material to your return. 

Where assumptions might make more sense in the future is if rates rise significantly and deals with sub 3% debt come back on the market that are assumable, it might make a lot of sense to assume the current low rate loan and also take out a mezzanine facility to bring LTV closer to 70-75% range. In this case your blended rate could be lower than what you could achieve with a new loan.

Helping a seller avoid a pre-payment penalty may also make your offer more attractive, and even get you a slight discount. It's not uncommon to have a seller say "assume it and we'll drop the price by X" or "free and clear is the offer price plus the pre-payment."

NMHC is the biggest and arguably the most important meeting and conference for the US multifamily industry. Hosted annually by the National Multifamily Housing Council, the largest apartments owners, brokers, lenders, third party service providers, and investors will all be in the same place to foster relationships and do deals. 

Who will be in Orlando this year at NMHC this year? What are you looking to accomplish and meet?

For us at Gray Capital we are excited to get together in person with all of the brokers, lenders, and owners we've been working with but haven't been able to get together in person for quite some time (or we're meeting or the first time). 

I am also looking forward to gathering as much intelligence and information as possible while I'm there. 

You do a lease / file audit during your DD period in addition to a physical inspection of any many units as possible (ideally 100%). The rent roll is usually off by a little, even if it just unaccounted for pets. 

We look at it as an income/expense ratio, or expense / income ratio. The baseline is the 50% rule which states that as a very general rule your expenses will be 50% of your revenue. This number varies depending on economies of scale, vintage, property condition, etc. It's not uncommon for professional operators to be in the 35-40% range. But that is really only one part of the story and doesn't paint a very clear view of the project, but it is worth tracking on your model.

Speaking of which, you have a few line items out of order on your spreadsheet and a few key ones missing. For example, and maybe you are using gross totals, but you should start with a "Gross Potential Rent" (GPR) and then then deduct physical vacancy, loss to lease, bad debt, and concessions and then sum to GRP for "Net Rental Income," add "other income" from fees etc to create your net revenue.

Then add up all your expenses, excluding cap ex and debt service but including property taxes, payroll, contract services and property management fee.

Deduct expenses from net revenue and that will give you your NOI.

Now deduct cap ex, reserves and debt service to give you your "Cash Flow" after debt service. Take the nominal amount of cash flow, divide by the equity in the project to give you your cash on cash return. 

You may be under the minimum loan amount but for anyone interested I would look up HUD223(f) . 

@Doug Spence I have done multiple times to invest as an LP in projects with another accredited investor or multiple, it's very straight forward.

In my own syndicated projects and fund we often have investors do the same. It's a great way to get into deals with high minimum investments or to get better diversification. 

If you are both accredited and you plan to invest in in 506(c) syndications, you'll need a letter from a CPA or your attorney that certifies that all members of your entity are accredited.