All Forum Posts by: Wendy Usrey

The answer is to value this as any other business generating income, not just stick within the confined box of valuing the real estate only.  The sales comparison approach is typically done for residential real estate and will be less appropriate and come in under value because there are no good comps, and even an appraisal using the income approach (unless the appraiser is trained to do more complex commercial appraisals) is probably not going to be the most accurate either because they typically use market cap rates and in this case you don’t have good comparable income properties to find the market cap for the analysis.  The best and most appropriate way to get a value, in my opinion, would be to use a discounted cash flow model.  A well qualified business broker or someone else experienced in those calculations (think someone with statistics/finance expertise) can easily do this.  

Quote from @Stewart VanValkenburg:

Was it this guy? He did the LinkedIn version of a friend request to me.

David W Owens

1st degree connection1stCEO/Owner Owens Financial

• Owens Financial Group
• Goethe University

San Francisco, California, United States Contact infowww.owensfinancialgroupllc.com

I think so different profile photo on my linked in but everything else matches.  I definitely would be careful if you decide to consider them- he had all the right answers, until it was time to actually move forward.  Then ghosted us when I questioned the “no escrow” piece.  Here is what his linked in looks like for me:

Thank you for the fast response! That’s what I was afraid of- he just told me they won’t use escrow (after agreeing to no upfront fees or payments when we first starting talking).  That’s a huge red flag for me.  Super frustrating to have wasted so much time and energy with them.  I appreciate the warning! 

Hi Aaron,

I’m curious to know what your experience was.  We were getting ready to move forward with them but now I’m having second thoughts after seeing this.  Would you mind elaborating on what happened? 

Wendy

Quote from @Mike Lambert:

@Wendy Usrey

Which places rent for $10,000 per night in Tulum??

The most overpriced and overhyped place is Azulik, where, in the heyday, people would pay up to $2,000 for a room without air conditioning and no guaranteed warm showers. These days are gone and that ship has sailed. The Holidays is the highest season in Tulum. I just checked online and you can book a room in Azulik for on Dec 24 for only $480!!

There are properties in other parts of the world that rent for very high dollars a night or more. They’re luxury villas. Airbnb Luxe is the market leader and the market manager is a friend of mine and he confirms the numbers you mentioned make absolutely no sense.

If I pitch to a lender or investor, I understand that they will do their due diligence and check my numbers and that my credibility is on the line. You found out that it’s very hard to find a lender so, if I was to find one for myself, I’d make sure numbers can’t easily be questioned and can be corroborated.

There are several properties along the beach road that command rates that high, but some are not marketing through typical channels (Aibnb, etc), so maybe that's why you didn't see them.  I can't disclose the specific names because of the NDA I signed (it could potentially reveal the property name and/or location).  I am aware of Azulik's resort and location, though I don't agree their ship has sailed... it is still one of the most widely discussed properties on the tourism boards I follow and our guests often tell me they tried to stay there for part of their stay and weren't able to get reservations.  I know they have a limited number of less expensive rooms (when I last looked the starting rates were $750 - $10,000 per night, but there was only one room that appeared at the low end of the price range).  I haven't stayed there myself though, so can't really speak to what the guest experience is.  Azulik is not being used as a comparable for this project, so the details are not really relevant anyway.

I have a solid background in industry/academic research and am well aware of how to find reliable data sources and do projections for future growth (I have experience as a real estate economist and did industry forecasts for the state of Colorado in both commercial and residential real estate).  My process has to be detailed, accurate and reproducible or I would never have made it through the peer-review process to have research published in academic and industry journals or be invited to present at finance and real estate conferences.  I apply that same level of attention to detail to the research and  analysis I do for our investments and my clients. I know I don't have a lot of activity for people to view on Bigger Pockets, but I do have a solid background in this area and plenty of qualifications to support what I am saying.  

I am not providing this information to convince you to reconsider the project but rather to protect my credibility with others who come across the post and might be interested in talking with us about this or future projects.  I'm not trying to discredit you or say you are wrong either, we have different backgrounds and experience.  It doesn't mean one is better than the other- both have value when it comes to the business we are in.   It's fine if you and your contacts disagree with my figures and projections.  You already said you weren't interested in the project so I'm not sure why this continues to come up.

If an investor would like more information and specific citations for all of the data sources I am more than happy to provide them with the details.  The project summary I provided to you was designed to be an introduction to start a conversation, not lay all of our cards on the table from the start (again for confidentiality reasons and to protect ourselves from someone poaching the idea).   

I do not have the time nor the interest in continued debate for the sole purpose of arguing.  I appreciate the time you spent reading my proposal and the points you have brought up, but I won't continue to have this conversation here.  If you would like to have a serious discussion please feel free to send me a message so we can keep it from muddying up the waters on this post.  

Quote from @Aaron B.:

That is an interesting find in Tulum and the project, but not for me. You won't be able to find a bank in the USA to do it and not likely in Mexico either. As mentioned, you will want a different source for borrowing. 

I know you did a title search, but make sure it was thorough because standard title searches would not normally show other things that you may not think about. For example, lawsuits, mining rights that were sold (not a problem in Tulum), etc. If the price is good, for the property, it does make me wonder why it hasn't been snatched up already. There are Mexican and Spanish developers with resorts there already and they are building more. 

I am wishing you luck. Do more diligent research then you think you need!

 Thank you for the advice Aaron.  Our attorneys did vetting beyond just a title search.  Along the coast we also have to be aware of the permits and site plans among other things, (for example if the construction was not done in a manner consistent with original approval and/or changes to the property were made after the fact because it can result in huge fines that have to be paid before getting approval for what we want to do).  In additional to the research the attorneys did we also consulted with two engineers that regularly do work along the beach road (which includes assisting with the permitting process) to make sure we covered our bases. The property is a good find, which is why we are anxious to get under contract before others discover the property and what specifically can be done with it.  We found out about it through personal area connections, so I'm not sure how widely marketed the property has been up to this point.  I'm we are not the only ones looking into it, but hoping the limited exposure will work to our benefit and buy us enough time to secure funding and move forward.  Thanks again for the advice!

Quote from @Frank Greg:

@Wendy Usrey:

You don’t have to overexplain and definitely do have to be careful who you share certain project details with when on a public forum.  I am trying not to appear to be knocking your deal but you don’t want to overinflate your numbers with estimates such as $10,000 per night. This is not a large area so one can literally count the number of hotels and resorts to determine what the rates are to get an estimate. An occupancy rate of 80-90% is probably also a stretch. Usually the valuation of an income producing property will normally use the cash flow from the property to determine value not ‘comps’. I don’t know if the area is a rural area or not.. just stating that lenders generally can be location sensitive in terms of where they lend and some can be deal specific in terms of project industry. This area is some 1500 miles away from Mexico City so you are likely looking for a lending source (and not necessarily a bank) that specializes in resorts and can deal with any seasonality or other industry associated risk. 

I appreciate the input.  $10k is not the rate I used, just providing reference as to what properties in this area can and do bring. I understand the need to be conservative.  We own two short term rentals there already and have had occupancy rates in the range of 85-95 percent even during low season, so my comments are based on personal experience in the market (although I did do a sensitivity analysis for the projections with numbers as low as 50% occupancy on the proforma).  It is definitely a challenging market to analyze because of how unique and varied it can be.  Great tip on seeking resort financing. Since we want to pivot into residential/short term rentals I was focused on a different category of lender, but that may be the ticket to accomplishing what we need to right now.  Do you have any thoughts on where I could look for a lender that specializes in this area?

Thank you for the response.  Not sure why those figures seem so unrealistic as they’re from government, tourism boards and other well respected data sources and are cited in our presentation.  We have a law firm in mexico that did the initial vetting for us on the land use and title status and confirmed with 2 engineers/developers that regularly work on the Tulum beach road the viability of our project.  I can assure you bribes are not part of our business plan. The resort is not abandoned either, just not open as a resort since being put on the market.  I certainly wouldn’t want to jeopardize my own money or reputation with a completely off base project, let alone risk someone else’s money (though I would hope they’d also do their own due diligence on the project and our business). Not here to debate or argue, as you mentioned we all have our own sources and expertise to bring to the table.  Clearly the project isn’t for you and that’s ok.  

Quote from @Frank Greg:

@Wendy Usrey:

Do you know of any global financial institutions that would loan on a project like this?  So far I haven’t been able to find any that will.  

The issue might not be a lack of institutions that lend in the area but rather who would lend to you based on the project specifics and its feasibility (or lack thereof). The more I hear about some of the project details, I can see a lender cringe. A beach front resort that is not currently operating... why is this? You are converting it into condos for STRs. What is the demand for STRs in this area. AirBNB has a few listings at $30 a night in this area. How does this support an $18 million valuation you are suggesting? This might be a relatively risky project based on any array of issues the lender may look at. Some can be very location sensitive. A lender here in the US for instance will often not lend in an overly rural area with little or no demand. First you have to ensure you have a credible feasible project but I have no details about your project.  

Hi Frank,
I have a very specific project summary I can share, but I can't post it here because bigger pockets doesn't let me send attachments if we're not connected and because I signed an NDA I can't blast too many specifics over social media. If you are finding rentals on the beach road in Tulum for $30/night there is something wrong. Average daily rates there are well over $1000 per night for a room. Anything under that likely is quite "rustic" with no AC or reliable WiFi. I know the area extremely well and have never seen a beachfront rental that cheap anywhere along the coast in the Riviera Maya. The resort next door to this one has rates that typically start around $10k per night for one room. I have a full set of comps available to demonstrate the rates (and we already own two properties in Tulum (not beachfront) producing higher rates too. Occupancy rates in the area average 80-90% throughout the year. Demand for STR is very high, Tulum needs to triple the amount of rentals in the market to keep pace with demand through next year. With the opening of the Mayan Train in 2023, and international airport in Tulum the following year there will be an even larger shortage of rentals (official statistics show a predicted increase in tourism of 300% once the train is fully operational).

The resort is not operating because the owner has decided to sell it.  They still have an on-site caretaker so it is not in bad condition, but the current design and setup is definitely not the highest and best use for the property.  They weren’t even aware it could be subdivided into condos until I had our lawyer research it.  I based the $18m valuation on comparable beachfront condos and verified this with an experienced broker in the area.  I used the estimated value for selling the condos rather than an income approach for the entire project because it is much more conservative and I don’t want any surprises.  Selling as individual units is a worst case scenario.  

I’m curious to know what details you think would make a lender cringe.  This is not a rural area by any means.  Tulum is one of the top destinations in the world for travel and the beach road in particular is considered to be a very high end, luxury market ( a lot of celebrities vacation here).  This is not your typical inexpensive  vacation in Mexico kind of place. 

I appreciate the feedback, and completely understand that it’s hard to make a judgement call without knowing the location or having complete information.  I didn’t realize I needed to provide so many specifics on the post as I assumed serious investors would ask for more details if they were interested.  I am new to posting on Bigger Pockets though so didn’t realize this was the norm.  Thank you for the input!

Quote from @Caroline Gerardo:

No idea what your loan to value or project is. Your status is not what matters- loan to value, generating income... ???

We are purchasing a beachfront resort and converting the villas into condominiums so they can be rented as short term rentals and/or individually sold. Resort is not operating right now so not currently generating income (it is still being maintained so not in terrible shape though), but there is plenty of data available for predicting rents upon completion. As-is value is approximately $6.9 million, as-repaired $18m. We expect renovations to be between 2 and 3m depending on the extent of remodel, so with a $10m loan, LTV is about 55%. We have a project summary I can share if there is interest.

The reason I mentioned our status as temporary residents is that it does matter for some Mexican lenders and banks (I know it’s not relevant for US lenders).