All Forum Posts by: Jeffrey Gordon

yeah, sure a niche here or there might provide some safety, but when the major trend is down, fighting it is a losing battle!

j

thanks Jay, I appreciate the insight!

My partner is 33 and would love to build the 8 plex to hold, me at 61 see more construction risk and would prefer to take the capital gain and buy some existing cashflowing  units to upgrade.

 We will have the design review in hand by first of March at the latest. The building permit is probably another 6-9 months after that.

I spent a lot of time in Seattle and have watched markets for a long time.  I think we are at the late stages of this RE cycle and am seeing a lot of inventory in the pipeline in DC.

 Which makes me happy we can easily carry this site and eventually build it out if a better option does not present itself.

with such a short hold and high DC taxes, selling it a month after we bought it was not terribly attractive

The bigger property owner to the north is originally from India, has a company that contracts for the feds and when we met him last weekend he seemed pretty sharp if not trying to play a little dumb about the market.

The other property owner to the south has a business located on the site and is selling it and the land and have been officially listed on the MLS since late September--it was a pocket listing before.

He has dropped his price to pretty close to the market as we see it, we have had some conflict with his business affecting the neighborhood so we have been reluctant to approach him directly.

As i listen to the wisdom shared here, Thanks folks!, I feel we should go back to the bigger property owner to the north and discuss how to market our properties as a package, that allow about 150,000 SF of development.

The market is pretty rich in D.C. these days, we dont see much of anything we are interested in buying, so from a cyclical standpoint we are probably not adding to our portfolio.

This neighborhood has the Capitol Riverfront to the east, the Wharf to the West and the Potomac and Anacostia within walking distance.  With our entitlement/variance in hand, we are pretty comfortable sitting on the site and waiting to see what the new year brings.

j

Hi Mark, thanks for the reply.

I must not be clear.  We are selling a development site with an 8.2 FAR.  Our comps are a lot that sold  less than a block away last month and 5 parcels 2 blocks away that are part of the stadium assembly and closed 2 months away--they are much bigger and have some toxic cleanup issues as well.

We have held the site for 7  months and only had one verbal offer the week after we closed on it.  The first ground breaking on the rest of the development in the area wont start till mid 2016--i.e. things look pretty much unchanged right now a year after the stadium was announced.

If no one makes us an offer we like for it, we can build the 8 unit building and hold it--regardless of what happens on either side of us.  In any event we move forward on those entitlements so we have options when negotiating.

What I am really trying to figure out is how could we promote the assembly of our lot to maximize our return and the other adjacent lots.  The smaller adjacent lot owner is a business owner and does not seem to development oriented, just a seller.  The guy to the north seems quite a bit more sophisticated and has already expressed an interest in assembling our lots.  But it is the other owner who has listed his property.

It is my opinion we need a commercial agent involved who understands a 200,000 SF development site and has the commercial developer Rolodex vs the residential agent who has the only listing.  I think I will just call the commercial agent and gauge his interest in the properties.

I don't quite get the "hold out too long" mentality. Is it an innate fear of commercial developers being so much tougher to deal with or something?  

This is a neighborhood going through a radical transformation, land prices are already almost  3 times what they were two years ago--that nearby property sold for $212,000 in Jan 2014 and closed at $599,000 last month--that seller was happy--works for Fundrise.

So i appreciate the observations of folks holding out too long, but I don't think we are there yet.

thanks

j

Hi Joel, thanks for weighing in.  You are pretty spot on to the situation.  We are concerned that the RE cycle is in its late stages so we are trying to stay flexible and reasonable. This property is in Wash. DC and we have been in this market for 8 years and have seen the cycle from top to bottom to top again--this time our timing was perfect and this is a small part of our portfolio which is cash flowing well with great LT financing in place etc.

Other than the balloon (which we might payoff by selling out a row house with a lot of equity in it) we can carry the first round of development costs easily out of pocket from cash flow.

We own a property across the street from this parcel, getting that piece of crap house out of there will definitely improve the neighborhood and avoid any potential community problems later on claiming some historical significance (we have the raze permit in hand and hope to have the building down in the next 2-3 weeks).

One strategy we have considered is to do some preliminary development planning for an assembled site to provide something for a commercial broker to use to drum up some interest.  Nothing to significant, but enough to help a developer to make an initial screening.  The owner to the north is pretty savvy and has some development experience, he is the one who offered 600k a week after we closed at $400k--that was a tough offer to decline--"No one ever went broke taking an early profit" P. Sproule

Part of what we get by working this is a an opportunity to go through a small MF development preliminary development process to understand how it really feels vs buying an existing building.  We are doing most of the development work in-house at a fraction of the cost.  But you are right, getting construction drawings and engineering started up will be a significant investment that might be better left for an experienced team or a bigger project.

My take is that the existing MF market in DMV region DC/MD/NoVa is pretty low caps and not much of a bargain.  In a perfect world we would complete the Design Review and then try and sell the parcel to a developer combining with the neighbors and we would structure something that works for us and puts cash in our hands in 12-24 months when we could hope that the MF market has returned to earth and we might go buy a C in NoVa with cash flow and work to upgrade it to a B etc.  If we pay off the 2 year development loan by selling one of our 5 rentals we should have around $1,000,000 in cash to invest.

From very limited research comps for Class C are probably in the $150,000/Unit range so we might find something in the 25 unit range which we could self manage with someone on site.

the real tough issue is disclosing we are likely sellers when we are ready to submit our Design Review application early next month.  

Nothing has been signed on the other parcels, but we assume that once a buyer had something under contract we should be hearing from them to inquire about our plans etc.

Your comments about strategies developers might use and my own experience in commercial real estate (sold MF sites for 5 years in Seattle in 80's) makes me unsure about how to encourage an assembly of the parcels at current dirt prices while being discreet.

I am inclined to call the CW guy we were referred to and get his take on the situation given his MF developer network etc. 

I think we are fortunate that we can afford to hold this parcel and develop an alternative path and wait to see how things play  out. This one of the last undeveloped neighborhoods in DC and is surrounded by a lot of cranes these days to the west and the east.  

But like you, i have enough development and construction experience that I would much rather buy cash flowing built properties and upgrade them than build from the ground up.  

thanks for you time!

j

We bought a 3,000 SF lot w/ teardown home in April for $400k ($130/SF) We bought it with 25% down 2 year interest only loan through a local S&L we have a good relationship with.

We bought the site because a new stadium is going to start construction (in 2017) 2 blocks away and our site is zoned mixed use comm/resid. with a residential FAR of 8.2.

A week after closing an agent approached us with an offer for $600k from a neighboring parcel owner.  We said thanks but we wanted to develop the site into 8 unit apartment building to hold.

Our strategy was to obtain the necessary entitlements during the first 12 months and then see where the market is and make a decision to proceed to construction permits or hold/sell.

In July we were approached by a major developer who was evaluating a 6,100 SF parcel adjacent to our south property border. They are a corner lot and are now listed at $2,550,000.  Again we told the developer we are for sale at $400+SF but we are proceeding with our development plans in the interim.

Last week the property owner to the north contacted us (we had sent out a notice that we razing the existing structure and that the work might entail us needing limited access to their property to remove some asbestos shingles from our building).  He has a 13,600 SF lot and was interested in assembling his lot with ours to develop something.

Again we told him we were for sale at $485/SF which is the most recent comp we have for this area.  He said he would be back in touch next week.

The stadium was just approved last December, while there are several large projects approved in the area, none of them have broken ground yet--i.e. the visual scope of what is about to happen in this neighborhood is till at 12-18 months away to the average person visiting the area.

We have our conceptual plans 95% complete and are only resolving a small code issue and then we will be submitting for a Design Review and small highly likely variance.  Because we are the first mover in this neighborhood we want to get our review  completed by March of 2016 and then we will have at least 2 years to obtain construction permits etc.

This site is narrow and deep with no alley access, it is only going to be about 60% of the potential FAR.  If/when the adjacent parcels develop we will be towered over by the new most likely taller buildings.  It would also be 10 times bigger than anything we have completed before--i.e. tough site and big project means very high risk for us to build it.

We envision we could partner with a developer with a deeper track record on our plans to reduce the risk a lot.

With the two parcels in play on both sides of us, we suspect the better strategy is to continue forward with out entitlement process and see if someone comes forward that wants to buy all three parcels and have 22,700SF to develop to an 8.2FAR for a residential or mixed use project.

We would like to encourage the property owners or any developers to put together the parcels but we feel like we have to be careful showing an interest while we are in the entitlement process (community support might be challenging if they think we are a seller vs developer).

Would it be best for us to encourage a commercial broker to get involved in assembling the project?  The corner lot is listed by a residential broker and we are not sure what type of experience/contacts he has for a 185,00+SF development.

We have been referred to a Cushman Wakefield broker with a lot of MF experience/contacts.  I think we could combine with either of the properties effectively or we could assemble all three parcels.

Sure could use some wisdom here, we know this is a great deal even if we decide to build it for our goals, if we can get above $400/SF we then have a big start on buying an existing MF building with existing cash flow etc.

thanks

jeff

 Thanks Jackie, I think the agent is the broker in a very small shop which was one of the factors in our feeling the transaction was a bit dicey in that property went on and off market twice in less than 24 hours etc.  We will see about sending in a backup offer.  jeffrey

Jackie, with your experience above I am hoping you might direct a newbie to short sales in the right direction. I have been watching a home that has been pending since March 2014 and is now showing extended until December 2014. It was listed as a "Potential short Sale" and it went through a really strange MLS listing where it came on the market and went pending in less than 24 hours. Then about 10 days later it came back on again and again went pending in less than 24 hours. My agent was never able to get in touch with the listing agent at any time. It felt very much like a seller might have been trying to put the property to a related party at a significant discount to both market value and the existing first and second mortgage debts.

My agent has done a little bit of short sale work, and I have wondered if we should have either made a back up offer or if we could/should try and contact the lender(s) directly to see if they have an interest in selling the note(s) or the property in a short sale--but I have not been sure what is the proper way to do that.  We have researched the title a bit and have identified the original lenders and loan amounts and even started to run down the legal team handling the foreclosure.  What has had me most puzzled is why the lender would be waiting so long to blow out his very low offer given it is probably 70% of market value and 50% of debt amounts?  Is there any chance of buying up the underlying debt and foreclosing on the notes or is that a crazy idea for a private party to pursue in a place like Washington DC?  thanks for any ideas/suggestions!

jeffrey

Hi tom, thanks for your reply. This would be project based voucher as they are two separate row houses in Near SE DC. I guess we were under the impression that there was some type of "application" to be in the voucher program by the landlord--now that I think about it if you are licensed and legal with DCHA the only requirement would be your willingness to accept vouchers. It makes sense that if the seller offers the tenant to buy the house and tenant declines then I would assume the only question is how long the tenant has on the remaining lease term--i.e. they can probably stay until the lease ends or may be encouraged to find another property to transfer their voucher to.

It is amazing how DC has managed to increase the complexity of the rental housing market with these programs. While the goal of affordable housing is noble, my experience has been that a not insignificant number of folks are abusing the system to the detriment of folks who probably really need housing. It was interesting to hear recently that they are shutting down the waiting list with 10,000 individuals and basically shutting down the department managing that list. Now they want to go back through the current voucher holders and ensure they qualify for the program--I guess that is progress?

thanks jeff

Chris again thanks so much for your response. I spoke with the seller early in Dec. when she approached me. I think she had spoken with a realtor about the value of the home, but I don't think she has approached the tenant yet. We know the tenant so it puts us in a bit of an awkward position at least until the offer would be made to the tenant. It is our feeling that the seller has to deal with the issue as a typical buyer does not want to deal with a tenant relocation. We have not dealt with this before--everything we have bought in DC was either seller owned/occupied or vacant.

So we are just developing our first strategy on how to deal with properties with current tenants in DC. The challenge would seem to be that the better the deal you work out upfront with the seller, the greater the chance the tenant might be able to either put a deal together by themselves and/or assignment their position. So on top of the timing issue in this situation there are a couple of basic different strategies that seem obvious:

1.Let the seller approach the tenant and start the process and see if tenant responds to offer with no contract between us and seller.

2. Negotiate a contract with seller and then wait for seller to make similar offer to tenant and see if tenant responds.

My gut reaction is to make a deal with the seller before they approach the tenants and build in the necessary time periods to allow for up to a year for the tenant relocation. This allows us control of the property subject only to the tenant issue being resolved and we will have a minimum of capital committed and hopefully refundable at least till the tenant issue is resolved and a minimum of time. The downside would be that the better the deal with negotiate the more likely the tenant would buy the property or assign their position to someone?

Having DCHA involved only seems to make things more complex as we sure don't want to run afoul of them.

You have any idea what type of transfer payments it takes to relocate tenants in a situation like this Chris? Not sure the seller has the cash sitting around but we could come up with it easily.

Gotta run, but thanks again for the insight!

jeffrey

Hi Chris, thank you so much for your response! We already own 4+ units in DC so we truly understand doing business as a landlord in DC, especially when it comes to rental units etc.

It was my instinct that DC's rules would probably be more challenging than Section 8, that is why I was surprised about seeing somewhere yesterday that it took 12 months to remove a unit from the Section Rolls.

I had not forgotten TOPA and assumed that current owner would be making a TOPA offer to the current tenant to buy the property either before or after we entered into a contract to purchase--still a little confused whether owner has to make the offer to tenant before listing the property or negotiating with a 3rd party to purchase owners unit.

From a practical standpoint it appears a landlord should be prepared to wait 6 months to clear the existing tenant and/or come to some kind of agreement with tenant to move--I would not call it extortion, but with financial assistance apparently available for deposits, an existing tenant has a lot of leverage over a selling landlord.

Are you thinking that DCHA makes the payment to a tenant to relocate them prior to the end of a lease rather than the landlord as well as that DCHA essentially has to sign off on any eviction/termination with cause that is prior to the end of a lease term (and it appears that can only be after the first 12 months?)?

The house we are looking at, after renovation, would be a little better neighborhood (one block west of where we are now) and a little higher value so it is very possible we would move into this property upon completion and rent out our current residence. I would assume those facts would make the tenant relocation a little easier vs continuing the property as rental?

thanks for your time!

jeffrey