Quick question for the experienced multifamily acquisition guys who have dealt with agency debt.
I’m looking to buy a small deal, 42 units, for $3.8M at a 7.4% cap on in-place. I commissioned a Capital Needs Assessment (CNA) to understand the deferred maintenance at the property. I’m not super familiar with these reports or how banks use them in their underwriting. I’m hoping to get some insights to incorporate into my cash flow projections.
The report painted a worst-case scenario for capital needs, which I assume is typical, but I’m not sure how banks interpret this. It came back with $1M in rehab costs categorized by urgency from 1-4. Fortunately, 75% of the costs fell into the “nice to do” categories (levels 3-4) rather than the “near to immediate attention” buckets (levels 1-2).
In short, I’m wondering how these reports impact agency lenders’ debt proceeds and debt service requirement calculations, and how they might influence what they require in reserves. On small deals like this, the IRR and yields gets super sensitive to up front capital requirements.
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