..:: For CRE analysts on WSO, what's your acquisition criteria? ::..
1) What are type of property do you acquire?
2) What states & major metros?
3) Deal & property size?
4) Cap rate?
5) Value-add or stabilized?
6) How much capital do you need to deploy?
Hah, "CRE Analysts" is a pretty wide-spread group of people man
Way too vague.
Your first question was very well thought out, thanks for the post Kofi
1) What type of property do you acquire? Retail, industrial, office, multi-family, hospitality, entertainment, R&D, condominiums, tract homes. 2) What states & major metros? CA, NV, AZ, WA, OR. 3) Deal & property size? $5-$250mm. 4) Cap rate? Varies 5) Value-add or stabilized? Distressed & Value-add. 6) How much capital do you need to deploy? Varies
1) What are type of property do you acquire? Don't acquire but are bankers to RE funds/developers 2) What states & major metros? Any place that makes us money 3) Deal & property size? Varies 4) Cap rate? Varies 5) Value-add or stabilized? Varies 6) How much capital do you need to deploy? Varies
These questions are way too broad.
As far as #6, note that lots of buyers that don't have any capital. They just go get it when they like a deal.
Thanks for the feedback. Like propspie said, when speaking with acquisitions analyst these are some of the questions that I ask, and they give responses similar to pe_re24.
For those of you that said these questions are too broad, what needs to be more specific?
I'll bite:
1)Multi-family 2) Southeast, Midwest, Southwest primarily...but we'll go anywhere if a relationship/good deal takes us there. 3) $5-$100 mm 4) Really depends on the deal 5) Both 6) As previously mentioned, if we like it and we don't have it we'll go get it.
I think people may be saying the questions are too vague because every transaction is different, and your criteria will change depending on the characteristics of the deal.
I don't really agree with this... a buyer has to have equity capital or else they aren't really a buyer, are they? What are you saying, that there are guys who see a deal they like and bring in outside equity to fund it? That's not a buyer, that's a broker or an originator or something. By definition a buyer owns the equity, right? I mean, I guess they could be like a managing partner in a JV with a minor equity stake and bring in money guys when they see good trades, but then they're not really buyers exactly, and even though they're a minor equity partner with less capital than the money partners, tey still must have had some capital to fund the minor position, so you can't say they have "no capital" so I guess those aren't the guys you're talking about.
If you mean debt capital, yeah no shit buddy. Banks don't write mortgages to fund acquisitions of properties unless a property is being acquired. Of course the buyer doesn't put the financing in place beforehand, how/why would you finance a building that you dont know exists? Like... what would the alternative be? Banks writes a mortgage based on some imaginary property that may or may not exist and send the equity guy on his merry way, mortgage proceeds in hand, in case he finds a building he likes?
I guess like... describe what you mean. In my mind if you didn't put up capital to purchase and hold the equity in a property, you're not a buyer. So I guess the only potential thing you could be trying to say that would make sense would be that there's lots of guys running around with no capital but if they see a deal they like, they somehow wave their magic wand and generate cash out of thin air. That seems... unlikely.
Whose money is that? How do they get it? What makes them a buyer and not a middleman? Like... I don't think there are very many guys running around with no capital who can snap their fingers and conjure a big slug of cash, and not just cash, EQUITY FUCKING CAPITAL, out of nowhere whenever they see a deal they like. Walk me through one of these deals, I'm intrigued.
I think Prospie is referring to the many people who go around attempting to syndicate deals. In reality they are closer to the brokers you described but they are able to structure the deal where they are able to get 5-10% of the equity or less with a promote structure simply for sourcing the deal and putting the money together.
Yeah I mean... If such trades existed they're really brokers who are getting paid in equity not buyers. Guy that buys the building and throws them a bone is the buyer.
But also like... Does such a trade really exist? I'm really not an expert on the equity side, but it seems unlikely that there are guys getting paid 10 points of equity for sourcing a deal. Little origination gremlins I've seen recently get paid like... A point or two maybe. Not 10.
I mean...think about the capital structure, ballpark CRE is going to get financed in the neighborhood of 75% LTV, so if you give up 10% of equity to some originator, the buyer just cut his economics almost in half. Why would anybody do that?
These guys specialize in creative off market deals where the economics work a lot different then your typical institutional deals.
I am curretntly trying to land an internship with a firm like the one is being described that is owned by an alum of my school and his brother. Acquisitions are typically fairly small ($100m) and the buyer does all the due dilligence, puts down the initial unsecured investment and then presents his model to high net worth individuals. They cut him a fairly high interest loan, he buys the building does a renovation and then takes out a mortgage to pay back his loan. In a couple years he has taken a couple thousand bucks and turned it into a 70,000+ sq ft portfolio.
Edit: What i mean is that a LOT of the large, respected owners out there have to partner for equity. They aren't necessarily shady brokers. Just because i don't have my own fund, just because I'm not a REIT, doesn't mean I'm not a respected owner and doesn't mean i can't close a deal. If I'm a huge developer in NY but all my equity is tied up in other projects, that doesn't mean i can't put an offer on an office tower i like and then get the money from my friend.
It sounds like this has just been a misunderstanding of semantics, but i stand by my statement that a respected local buyer can definitely sign an LOI without having 90% of the equity to close the deal.
@Bandar In the past we have partnered with a JV who put up 5% equity on a $40M property, a few guys in the JV pooled to be 1/3 of the JV money, with unnamed equity partners
@65% LTV, that's 40M x 65% x 5% x 33% divided by 2 people = 214k per person. Not only are they a buyer but they tied up the deal before having a JV term sheet signed.
Sorry for the shitty post I suck with iPads
I argue that it still is. Many middle market institutional funds source transactions through local operators and do a 95/5 or 90/10. The small stack manages the property and incentives are aligned. The finance guys stick to finance and the operators do what they do best.
The minority equity guys will have several of these relationships and market the majority equity piece prior to closing the transaction. Someone bites and, boom. Equity fucking capital.
This thread is silly but I don’t know why I'm going to participate
1) All major commercial asset classes 2) Across the US but must be in major metropolitan cities or industrials servicing those cities 3) Depends on 1031 requirements and what the financing proceeds of that year look like 4) Varies but since we invest in core assets today they are typically high 4's-6% 5) Core/stabilized but we do a lot of development of raw land 6) Same answer as #3
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