All Forum Posts by: Christopher Telles

@David Thompson is this an unpaid advertisement for your services?

I simply posted a website some BP members looking for MF might find helpful. 

Did you even review my profile? If you had you'd have seen I'm open to new connections, but your offering would most likely fall on deaf ears. Spam isn't cool.

I have no affiliation with this company/website. This information is being provided in response to reading about so many BP members not being able to find MF deals. If it can help you great. If it can't then move on. LOOKING FOR A NEW WAY TO SEARCH FOR MULTIFAMILY LISTINGS? In an industry where access to the latest listings in real time is vital to investor success, ApartmentBuildings.com is providing a revolutionary way to list and search for multifamily properties for sale. Properties listed on the site span the United States, giving investors access to a wealth of potential investment deals. INVESTORS SEE DEALS FROM DAY ONE FOR FREE The site focuses solely on apartment sellers, buyers, brokers, builders, REITs, property managers, and lenders. While other sites charge a fee for investors to search available listings, ApartmentBuildings.com allows investors to search and view listings from day one for free. Additionally, the site provides seller leads to listing brokers as well as loan quotes. Currently, ApartmentBuildings.com is offering complimentary memberships to investors and brokers to search the site. According to the site, more than 250,000 brokers and investors are looking for multifamily properties for sale. By honing in on such a precise audience, this site is making it easy for targeted audiences to find exactly what they are looking for without having to wade through a multitude of listings that might not suit their needs. As investors are all too well aware, time is money in the commercial real estate industry. ApartmentBuildings.com is helping cut straight to the bottom line and provide investors and property owners with a way to connect quickly and easily.

Institutional investors target mid to upper teen IRR's when underwriting value add deals.

Individual investors have more flexibility, but the majority of individual investors who underwrite this way target 20%+

You mentioned that you found the deal by accident of sorts so I'm going to assume you also invest in MF as per your other comments.

You don't really say what the percentage breakdown is of the physical space e.g. MF Vs Retail, but I would like to add a comment for whatever value you might receive from it.

A 5.9% cap for what you've described seems awfully skinny. CRE retail and or mixed use "value add" deals tend to project a cap rate 200 to 500 basis points higher. You're putting a lot of downstroke into buying a problem property, of course one that can be solved, but you should be compensated well for that effort.

My suggestion would be you revisit the deal. If MF is the primary value driver then your cap rate projection should be market rate cap + a premium for the value add + a market cap for the retail + a value add component for the retail value add = better than a sub six cap.

Just given your description of the value add components and the re-tenanting required to get to a market value I personally wouldn't touch it under a projected 9 to 10%, if I really really liked it, and most likely pushing into an IRR into the mid teens. That's not me being greedy, that's me wanting to be compensated for time, effort, and most importantly risk.

All the best!

Don't count your chickens before they hatch.

No really, hopefully your underwriting isn't including a 'value add' for gentrification of the neighborhood in this property. Transforming areas take decades, not years. 

Many today would consider South Park and the Staples Center to be a good investment area, but if you would have been an investor in that marketplace in the early 2000's you'd know if was a tough place to get tenants to rent, the homeless and transients didn't help. Fast forward ten year and not to much had changed, except the Staples Center was an island development. The came residential towers, then restaurants, then retail, then more development.

Same goes with 2nd Street in Long Beach. Early 1990's that street was silent. Busy on weekends with local bars and restaurants, but not the destination place it is today. That was also two decades in the making. Don't 'add' a value that isn't there when making an investment. Cashflow (proforma cashflow to guide your underwriting in a value add deal) should be the only measuring stick for this deal.

To your potential investment, underwrite the deal like a typical value add deal, if you haven't already, and then ensure you can improve the building(s) on budget and can raise rents to market.

As for mixed use, their desirable by many. Atypical apartment investors may shy away because they don't understand the commercial component, but there are many yield seeking investors who will buy a well maintained high yielding mixed use investment.

@Nick Hakim I don't think it's simply a matter of a city's hotel tax that municipalities are concerned with alone. There's little question every/any city is wanting to capture a hotel tax revenue, but they're going to equally be cognizant of the inherent liabilities that come along with collecting that revenue. And this is where landlords of VRBO units are feeling the pain.

Many existing VRBO "on demand" rentals do not comply with current municipal building codes for overnight on demand stays. As a monthly rental they're fine, but when rented as an overnight on demand rental they could potentially expose not only the landlord to liability, but also the municipality if that municipality approved of the use.

The UBC codes which are adopted, even if modified, into a municipality's building and use codes substantially differentiate between a residential use and an on demand hotel use. The issue becomes even more complicated when density of use increases e.g. single free standing residence Vs densely populated mid/high rise residential building.

Municipalities have a fiduciary responsibility and a duty to protect citizens living in and or visiting their cities. Fire life safety is a large component in approving or restricting use.

"if you don't know, you can't object and therefore enforce." 

Unfortunately, municipalities, and ultimately most likely courts too, are not keen to accept this argument as a barrier to liability for whatever use or physical infractions exist on a property. Municipal regulators will always look to the titled entity for impairment corrections because ultimately its the owner that has the most to gain/loss should conditions present dictate changes.

In the situation story, and in most instances in the NYC marketplace, landlords will need to incorporate new language into their rental/lease contracts that prohibit and AirBnB use, and furthermore pass on the financial liability for any breach to the tenant.

In no way shape or form should the temporary on demand tenancy have any liability for building or use infractions resulting from their rental. 

I tend to agree that AirBnb should actively pursue and address their platform use issues with the municipalities in the NYC marketplace to prevent incidents such as the example going viral and threatening their rental platform franchise in this marketplace as well as many others around the world.

While not a lender myself, nor an attorney, I can say that many of my former CRE industrial clients have bought buildings that they originally occupied 51% or more and then either bought another larger building to accommodate growth or reduced in size or went out of business and leased the entire building(s) out to tenants.

I think the occupancy rule is in place to discourage investors from accessing SBA loans for the simple privilege of using these funds for speculative real estate investment. The SBA program itself is designed to help small businesses grow their business. Providing access to financing CRE that may not otherwise exist without the SBA guarantee has helped many an entrepreneur buy and grow their business.

The SBA, anyone really, doesn't have a crystal ball to see into the future. If your intent is to buy the building to help you and your business then you've met their criteria for the use of the loan. If things change later then as long as you live up to your financial commitment you shouldn't have any reason to be concerned. 

I would encourage you to also compare the SBA 504 loan to an SBA 7a loan and other bank financing alternatives. If the amortization or low downpayment is what is driving you towards the SBA loan, if your downpayment is under 20% it may be the only loan option, then you would be pressed to find a similar loan. However, if you plan on putting down more than 20% and you are comfortable with a term loan then there are other lenders who may be willing to lend at better rates with similar qualifying criteria. Try local small banks, a little bigger regional banks, and credit unions. These banks want good borrowers who might also move their business to their institution. They might also be a good source for other debt products once you've established a good relationship with them.   

For what its worth, its a great idea to solve your current dilemma, and might also be a better idea for someone interested in investing in this type of facility.

Hosting locations, halls, banquet houses, etc., have been a round forever. Typically they are smaller locations with larger events going to hotels, glof clubs, etc.

Recently, as in the last 30 days, a brand spanking new warehouse was finished in Irvine, CA where the primary business is hosting events.

The exterior is attractive, and the interior I'm told, my wife peeked inside, is nice too. The building appears to be somewhere in the 40-50,000 sq ft range and is located primarily in a commercial area.

Now, prices/rents in Irvine, CA are ridiculous which means this business really has to have some superior margin numbers to be able to turn a profit. The marketing materials, again my wife read them, state they are targeting commercial business uses such as trade shows (probably a less expensive alternative to the larger convention center venues) company events, industry gathering venues, seminars, and personal events such as weddings, large family gatherings, graduations, etc. 

I don't know anything about the hosting/catering business, but I do know this maybe a new investment/business trend. 

@Account Closed the question is concerning commercial property. Residential and commercial HOA's are almost incomparable.

Three of the four homes I've owned and lived in as my primary residence in my adult life have been in HOA governed communities. Each had their own special uniqueness that I, and many of my neighbors, would have preferred to live without. However, they're created to protect neighbors from abusing other neighbors and to protect property values through maintenance and or aesthetic homogeneity. Anyone buying a home in an HOA knows, are at the very minimum has a chance to learn, what the HOA by laws and CC&R's say about use, modification, maintenance, etc. People buy at their own risk and peril.

Commercial HOA's, most typically, do not operate in this manner. They're usually managed by professional commercial managers whose job is to see to it that there is general compliance to the by laws and CC&R's. The vast majority of commercial CC&R's I've seen have a management component requirement with back up alternatives should the original management operative or structure no longer be relevant at some future date. I'n sure there are some HOA's without these protections, but since we're talking about commercial real estate the properties owners are also likely to be of a more sophisticated nature e.g. corporate owners, business owners, sophisticated investors, etc.

When we were developing commercial business parks back in the late 90's we not only hired management companies, but hired a battery of consultants, a very expensive proposition, to provide us guidance on various best in practice options for HOA's to operate.