Just had another one blow up in my face today. Selected buyer was 10% over guidance, $2mm hard at PSA execution.
There are only so many recaps or off market deals we can do. Is anyone else worried about hitting their acquisitions goals this year? How are you coping?
I'm a merchant developer. All we've heard last year and this year is that there is infinitely more money out there that needs to be placed than there are deals to do or buy. You can't blame a group for overpaying a bit in order to get that cash out the door or blame the owner for picking the highest bidder.
In this kind of environment, I have no time for the kind of bs buyers pull. Give me cash up front and close when you say you will. I've had more than enough of buyers pulling some nonsense and then not officially going hard until the closing date.
I completely understand a seller's perspective here. Our fund has actually doubled our planned dispositions for 2020 given how much capital is out there, so it would be hypocritical for me to "blame" the sellers.
I'm more curious how institutiona capital is staying competitive on the buyside through this market (adjusting UW assumptions, lowering return thresholds, simply not participating, etc.).
Ya boy is out here adjusting exit caps, cranking rent growth later in the hold, assuming semi-aggressive refinance scenarios, and generally accepting lower returns.
Works every time, baby
Worrying about PSF is so 2010
Return requirements are coming down as a result of current environment as well as sovereigns/pensions/etc... investing directly at the opco level and thus, cutting out the required spread at the intermediary level.
It's super challenging out there. It is a seller's market - plain and simple. It is really really difficult to generate alpha / purchase deals at attractive pricing on a one off basis. Those with an edge - i.e. blackstone - are best positioned here.
My recommendation is to think long and hard about your acquisition strategy and the types of deals you are targeting. Tailor your strategy to your capital structure. Think about where you might have an edge with your current source. If you're an operator with existing relationships this exercise becomes easier as there are multiple partners with varying capital.
It's not 2015-2016-2017 anymore. There are no more layups. Every deal is seemingly hard fought. Really need to think to get stuff done these days
It's fking awful in Phoenix. Same trends in Texas and other markets I am looking at in Western United States. You have to assume market rent growth of 5-7% to make a deal pencil for value add using market rents post renovation on a couple of deals in Phoenix that have closed that I re-underwrote once I got info from the broker post close. I have seen deals trade for 10 to 15% above whisper with exit price assumptions trading above new product today for 1970s POS product. It's nuts...some brokers have said off the record they underwrite to a 10-12% IRR (using broker numbers, this is probably a 0-5% IRR if you use real numbers). You have to use above market rent growth, BS expense margins, flat or lower exit caps and lever up to make deals work. Brokers pitching 2nd or 3rd generation deals that have traded 2 or 3 times during the last decade with each owner making renovations as value add. It's making my job almost impossible... even Boise, a tiny ass market with less than $150M in total MF transaction activity in 2019 is showing crazy valuation (more mom and pop submarket than institutional groups here are doing weird shit just to buy deals). way too much dry powder on the side lines and people are just collecting fees, really fking frustrating!!
I am literally just doing this so I can read it - It's fking awful in Phoenix. Same trends in Texas and other markets I am looking at in Western United States. You have to assume market rent growth of 5-7% to make a deal pencil for value add using market rents post renovation on a couple of deals in Phoenix that have closed that I re-underwrote once I got info from the broker post close. I have seen deals trade for 10 to 15% above whisper with exit price assumptions trading above new product today for 1970s POS product. It's nuts...some brokers have said off the record they underwrite to a 10-12% IRR (using broker numbers, this is probably a 0-5% IRR if you use real numbers). You have to use above market rent growth, BS expense margins, flat or lower exit caps and lever up to make deals work. Brokers pitching 2nd or 3rd generation deals that have traded 2 or 3 times during the last decade with each owner making renovations as value add. It's making my job almost impossible... even Boise, a tiny ass market with less than $150M in total MF transaction activity in 2019 is showing crazy valuation (more mom and pop submarket than institutional groups here are doing weird shit just to buy deals). way too much dry powder on the side lines and people are just collecting fees, really fking frustrating!!
"It's not like anyone ever asks how the deals on your resume performed."
-Senior Acquisitions Associate
On very attractive deals we're doing a ton of DD upfront, hard money before DD, depending on how many buildings/tenants we offer very very short DD periods, quick close all cash after that then refi afterwards.
Obviously on top of all that offering the highest price...
In today's market you need a reason to give the seller to not accept all the offers that come in after a deal has already been awarded to you.
We offer to do all our DD simultaneously with PSA negotiations. Our DD periods are often a week or two (with the exception of title and survey which are long lead items) so we are often hard 100% by contract signing so offering some pre DD "hard money" is ice in the winter.
Without getting into specifics because I think that can cloud the discussion more than help because everyone is looking at different shit, today you need to be willing to do DD concurrently with PSA negotiations and speed is everything, be willing to spend more on legal to help with DD, it will be worth 50K to bring your DD from 30 days to a week or so.
I know many who work institutional firms cant do this but we also do not have to receive final PCA or ESA reports to finish DD. We can do it with a summary letter or a phone call giving an all clear and wait on final reports later.
As I said before we also close all cash and finance later. This is an important distinction from no financing obligation because inevitably people are calling sellers asking for a bit more time for financing even though there is no obligation in the deal.
Quick summary: Do DD concurrently with PSA negotiations, Offer "hard money deposit" upon signing PSA (this should be ice in the winter), be willing to spend more on legal time to help shorten your time table.
is OP in multifamily ? .... shit is everyone in the RE forum in multifamily? if so, that's your fuckin problem
I bet 75%+ of the RE forum is Multifamily