Acquisitions Day to Day in Todays Environment
I just started an acquisitions analyst role, obviously market is very slow in general but what is everyone seeing day to day?
My boss in generally busy with his own things and I feel kind of on my own. He delegates tasks and it may because it's super slow rn and even if we see deals we aren't really looking at them.
Is this normal for an acquisitions analyst rn? Boss is there to answer questions but not getting a ton of UW experience and more taking an initial look at deals. Are other analysts not busy or even more senior members? Any insight in general would be great too.
Acquisitions** plz fx
Yeah definitely was a lot busier last year. My job has shifted more to focus on the existing deals we have under contract and not really underwriting as much new stuff. Definitely a weird time
Good to know - it's been mostly work on existing deals/projects already under construction so I'm involved in those somewhat but it's slow/not putting out offers/etc so wanted to make sure it wasn't just me. At least still seeing deals from the principal side, doing initial UW, getting a feel for markets.
Same here. Our partners flat out said "we're going to ride the ship on what we've got for now." So very little acquisition underwriting. Day to day right now is development management, financial planning, accounting, etc. Mapping out new development in markets I don't know but should know. Lot of thumb twiddling. We have been lucky enough that our tenants haven't dropped out of our deals (including the less committed ones in the LOI stage or DD period). Our engineering team thinks every hard cost bid we get is "very high." It's costing us $375K/acre to do site work right now. Building a BTS NNN bank that will cost all in $423/SF (vanilla shell delivery, with another $50/SFTI). When I tell external, more senior developers about that, it's like they can't believe how expensive that is.
It seems more appealing than ever to us to have an ancillary asset management or property management business. It is what it is.
Acquisitions Day To Day In Todays Environment - Goes something like this for me;
"What about rising interest rates?"
"What about rising energy costs?"
"Why wouldn't I just buy bonds over this?"
*Run back to my desk with my tail in-between my legs
^Rinse and repeat the following day
We mostly are development but usually are pretty active in acquisitions as well, but anymore we don't waste our time on acquisitions unless its bonus depreciation or 1031 targets that are just clipping coupons and taking the cash flow. We have UW a couple deals in the last few months, but unless its a high cap rate or big value add we reject it from our analysts almost immediately. We told our analysts to not even look at core or core+ deals for the next 12 months minimum unless the cap rate is in the high 7's.
Fair, same here. We have been looking at mainly opportunistic deals (ground up dev) and for value add needs to be in a similar range 7 caps. But a lot of the value add brokers push is bs and even with their OM proforma rents these value add deals they push are 4-low 5 caps going in. So pricing is way off. And from what I've seen the assumable debt is good from an interest rate perspective but LTV is 50% so layering in pret or mezz in this environment would be insane overall cost of capital.
Cool. Have fun sitting on the sidelines.
High 7s? We are targeting a 6 and I thought that was crazy high lol.
Lmao 7 is certified larping. Pls tell me where you can build multi to a 7 w these idiotic construction costs.
Our shop is usually more development-focused, but with such little visibility on cap rates and costs where they are, we are pencils down on new dev opportunities for the time being. To try and gain some clarity on where our target markets truly are, we are tracking every single applicable acquisition opportunity being marketed right now. We've pivoted our six dev analysts to underwriting these so they stay busy. At least this way when a deal actually closes, we know exactly what the metrics look like with our UW standards and can extrapolate data for our dev platform.
For acquisitions, nothing we've seen is truly actionable and we've submitted zero LOI's, as the bid-ask spread on assets/locations we like is just too large. Brokers still guiding to low-to-mid 4 caps in most of the markets we play in. Consistently find ourselves 15-30% off guidance for cap rate/returns we like. Generally solving to mid/high 6 caps after burning off the LTL, so figure low-6's going-in. Still tight on negative leverage in Year 1, but basis & discount to replacement cost starts to get attractive at those levels (at least for the core+ Class A stuff we are looking at...solve to higher caps for older value-add product, which isn't really our wheelhouse).
Our acquisitions team is just me (senior associate) and my boss (EVP/Head of Acq), so it would have been impossible for me to UW all on-market deals in 8 different MSA's in addition to sourcing/staying in touch with all the brokers. I'm overseeing the analyst group which has been a nice change of pace, but managing people (both up and down the hierarchy) can be a pain in the ass.
Weird times for sure, and I don't think many of the deals out to market right now will trade in Q4/Q1 2023. But with the wall of bridge/debt fund maturities coming later in 2023 and 2024 (cough Tides cough), I believe something has to pop at some point. Somebody will need liquidity and will have to meet the market. Highly-levered, non-institutional borrowers are either going to have to remargin/infuse substantial equity or sell at a loss.
pretty much this. At this point we are just pencils down until early next year. As we speak I'm about to leave the office for a fall BBQ at my bosses place and all the analysts are at the gym lol
3rd year and tbh, I don't do shit. I UW a few deals have some talking points and then we pass on them, if a deal falls through the cracks its not even my fault its more senior team not looking at pipeline.
Hard to care much when there isn't anything that will happen, I can work harder for the same result.
Bonus is probably going to suck this year, and maybe we continue doing nothing until Q2 next year. IDK stopped really caring, helping out with some AM and dispo stuff.
And all our dispos are probably doomed to fail anyway.
I'll buy your dispos. But be prepared to be bleeding on the ground and getting kicked.
I'll just keep em thanks
Still extremely active. Fundraising is obviously a lot more difficult, but if you can still show mid to high teens IRRs there is interest. After all, better that than letting cash sit idle for months. Some of the affordable and regulated housing markets have quite a bit of inflation and opex inflation protection, so selling those deals isn't any harder than it was 12 months ago. Obviously debt markets are expensive as hell, but the argument is that if we build in pre-pay flexibility, then when rates inevitably come down a bit, we'll be in a position to cash out some of the equity investment.
Literally nothing going on. Just twiddling my thumbs at this point. The market is messed up plus the holidays are approaching so expect to be super slow for awhile.
Expect a whole lot of nothing unless your backed by equity thats looking for a 5% IRR.
Yeah, sucks but that's pretty normal right now. Most senior people are pretty bored, sometimes just doing things to keep busy. Nobody is expecting analysts to be like... a hustler right now and get a bunch of stuff done. Just don't be annoying and you should be good. everywhere is like this right now
A lot of running on a treadmill while jacking off. That pretty much sums it up nicely.
It is a way of saying that everyone is just wasting time.
Wouldn't say I'm as busy as Q1 but we had a couple of opportunities fall our way because the seller got retraded or the deal got dropped altogether.
We've also done a fair amount of UW to get understand how much values could fall.
Financing is non-existent though. Banks have no capacity to lend and are sitting on their hands until stress tests are done next year. Not a lot of appetite for construction lending either.
I've heard 10%+ required DY's for lenders on multi construction. So 55-60% LTC, max.
That's inline with the quotes we've seen from banks. If you look at HUD for multi the leverage gets much more attractive (was quoted at 75% in the recent months). However, HUD lending means no refi for equity back to investors so there's that trade off with IRR taking a slight hit.
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