All Forum Posts by: Victor Ong

Wouldn't you factor DCR/CLTV/Term to price the premium on the spread? If the CLTV for both 1st and 2nd falls below 70% and within 1.25 DCR, then the performing 2nd shouldn't face that much risk at 2nd. In addition, we should also look at the duration mismatch between 1st and 2nd.

I personally think mezzanine is the most risky deal since you are responsible for both the 1st and 2nd. However, if done right, mezzanine could be rewarding.

I think 65/35 promote without waterfall would be fair in the following conditions:

1. The sponsor has to take the project from entitlement to stabilized (ground ups)

2. The sponsor has to completely gut out and rehab the distressed properties

In both instances, sponsor has to invest a huge amount of time to stabilize the project. You'll start to grow white hair during the process, especially entitlement/land use/gut-out rehabs.

However, if the sponsor only buys and performs cosmetic rehabs, then I believe 2/20 or even 2/10 structure makes more sense. The risk is lower and the effort is less. You just have to be fair on how much effort the sponsor has to invest in and compensate them accordingly. 

@Will Dixon if you are getting financing from non-gse mortgages or portfolio loans, most likely the lenders have a different set of overlay to underwrite the loss.

@John Kim Is this the first time you operate a self storage? Management makes a huge difference in the outcome since the business requires day to day operation.

Paul - 

How long does the entitlement process take? (From acquisition to ready to issue permit)

How long will the construction take until finished?

Is it a develop to hold or develop to sell deal? 

How is the capital stack structured?

Try crowd street for RE crowd funding but they would sponsors to have over 100m AUM and exited

For the past 10 years, developers have been building these similar townhome across city of LA. I am also engaged in a couple of ground up townhome development)s. You will see a bunch of these in South LA and East LA.

As for LA multifamily rental market, demand has been surpassing supply by 2:1 ratio. We got the chart from Arbor Trust Realty last year and Los Angeles is the number one city when it comes to Demand:Supply ratio due to the high barrier of entry to develop brand new projects (city regulations, archaic zoning code, and ever changing building code). The trend will continue its course if not worsen after the pandemic. A wave of foreclosures are coming after the forbearance expires and eventually these ex-home owners will have to rent if they have to stay in LA.

We think LA has a good 20 years for the long run; therefore, we will continue to invest in the MFR market. In addition, 2 major events will greatly contribute to LA real estates:

2026 - World Cup
2028 - Olympic, which LA will invest 6.9B into the event including infrastructure upgrades

If you plan is to buy and hold, I would wait for more deals to pop up. We have the dreadful rent and eviction moratorium, which could complicate your holding and financing. Again, there will be a wave of foreclosures down the path...

Commercial mortgages looks at the lower of DCR and LTV. For MFR, your DCR should be around 1.25, while LTV should not exceed 70%. Some lenders will also throw in YSP, which could get difficult when you are buying an in place property.

Dont rely an agent to submit offers for you. If you already found the property and figured out the number, then find a platform like Redfin or Openlisting/Open Door to submit offer based on your terms and conditions. They even offer rebate on closing commission. Since you already performed your due diligence, the buying agent wont be able to provide much value to you other than writing an offer. They just need to execute on your behalf.

Properties are bought not sold these days. Real estate consumer experience have shifted dramatically from being force fed with info to actively looking for data on their own. Buyers are in more control of the acquisition process than ever.

@Will Barnard we cashed out and leased it out. We don’t sell our properties unless the net present value dar exceeds our discount rate.