IRR on affordable high-rise condo deal ? ? ?
I am talking to a few hnwi in the next week about buying/recap. An entitled and permitted affordable condo highrise with 180 units. The stack has $35M in bank loan, $15M loan from the state, and $Xm for the land. Land is $7-8M. In place with very little new construction due to extreme construction, land, and entitlement cost. Very liquid and very very very solid re market. (4% caps are still trading...) Really low risk deal, similar buildings in area sellout overnight as low income condos are very rare and entitlements and financing this type of deal takes 4+ years. What kind of irr should an investor expect from this? Total development cost all in will be $58M. Revenue will be $68M conservatively. Construction can start in a few months, finishing up with planning department right now. Construction term two years. Total, an investors money will be in this 2.5 yrs tops. Very experienced developer with about 5000 homes built in southern california and lots of previous affordable and lihtc experience. Reason for recap/partial sale is the developers partners need cash and want to liquidate. Developer expects to keep peice of deal and do all the work... Again, irr?? Thanks! BTW PM me if you think you have a investor who is comfortable with investing $7-10M without sweating too hard.
I would think that this deal would be a hard one to get people interested in. You're talking about a target cost of equity of, I don't know, 5-7%, but most investors in the $7-10 million range are looking at a long-term hold if they are getting 5-7% returns on their equity. For 5-7% I can do a long-term hold on a market-rate project.
Structured as it is, I would want 8-10% to get interested (and the premium is not risk premium; it's opportunity cost premium). Just my 2 cents and not necessarily the "right" answer (the "right" answer is the required return at which you can actually raise the capital for the deal).
If they are recapping or selling the deal, it looks like he is trying to say they need a lp to buy them land from them at $7-8M. So if i am correct, the profit looks like $10M $68M subracted from $58M. If profit is $10M, investment is say $8M- isnt return something more like 2X EQM after developer takes his carry or however they structute it? Thats a killer return on a gov $ deal if i am looking at this right
Correct... Investor has potential to double their money depending on partnership deal. Thoughts now?
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