I submitted an offer on a 45 unit apartment building today. It was a call for offers situation so we made (what we thought) was a pretty strong offer. Based on our underwriting which was fairly aggressive we were offering an 8 cap. This is a value add deal in a tiny market in the northeast.
The broker is a one map shop who sells single family homes and the occasional multi. The proforma annual operating expenses were $2300 per unit yer year including management. All tenants pay is electric and the building over 50k square feet. The building is old as hell and we will be lucky to heat it for that amount if oil and gas rebound at all. The broker told me my offer was insulting, that I was a joke, and I about half of what he anticipated other offers coming in at.
It really is too bad because this guy obviously jacked up his clients expectations and now they will never be happy with a realistic number. What is the craziest shit you have seen a broker include in an OM?
Ummm, an 8 cap on a value add property is a super lowball offer in most markets. Most older value add multifamily properties in my market trade below a 5 cap.
This is exactly why I have not purchased any thing in the past 2 years. Everything is way overvalued.
This is a super small metro in the northeast. The cap was not at all off market. Value add was probably not a great way of putting it. There is a lot of deferred maintenance with some potential upside in rents but it will be a lot of work.
How do you get decent cash yield at a 5 cap post value add? Can you walk through your thought process and quantify it.... older, multi fam, value add, below a 5 cap, minus 50bpts after renovation capital invested...?
They must be banking on a huge appreciation in equity.... I can't make a deal work without it being a 7% cap or better if there is some work to be done and rents to be bumped.
no he's saying the 5 cap is pre-value add
What @prospie said. The 5 cap is before the value add. Depending on what shape the units are in you can usually get to a decent cash yield through value add improvements. If there is a ton of deferred maintenance/capex that won't increase rents, it becomes much harder to pencil the deal.
God I love that blast from the past... missing 5 caps or even 8's...
OP must be a joke..... an 8 cap on a 45 unit apartment?! What the fuck. Is this apartment located in butt fuck nowhere? lmao
For one MF deal we looked at last year the broker actually had the audacity to underwrite the first year to be TWO FULL YEARS AHEAD, with 2 years of huge (unsupported) rate bumps included. No surprise, it didn't trade and we bought it six months later at a discount.
Most outrageous claim I've ever seen was actually a broker's bio.
He was repping the seller of a middle-of-nowhere tract of land in Arkansas. Bio said something to the effect of:
"Broker X is one of the preeminent real estate experts in the world due to his love of the land. Broker X first got his real estate license in 1976, but iniitially kept his focus on tending to his rice and soybean farm; however, as a lifelong pilot, Broker X believes in soaring high. This mindset has allowed Broker X to build a winning portfolio."
.
Phrasing...
This makes me feel "less than".
Link to this guy's loopnet or something.
Wouldn't feel right outing the guy publicly (hence "Broker X"), just know that the pic next to his bio is a very fat redneck, wearing an ill-fitted suit, giving the Zoolander look into the camera.
I think you've already given me enough info that I think his name is Jim and he loves firearms and flies a cessna?
Different dude, but funny that there's another guy who would match the description.
not the craziest but I hate it with a passion when OM says something to the effect of "permit ready" then you find out broker had no fucking clue what that means after one call to the town.
This 100%. I now just assume they mean "you should be ready to do all the work to get a permit". If there is an actual NB on the property or whatever the relevant permit is, a good broker will specify
I think thats the most frustrating, if you dont know thats fine but dont say permit ready or utilities to the site if you dont know what that means
Dudes its not a shit offer, I doubt you could buy at a 5 capt and what sells it at a 3.5? Who's gonna guy it off of you, owner occupiers maybe if you individually title each unit.
Also have you already got equity capital lined up? Or were you going to raise that after getting offer accepted.
Not from an OM, but there's a couple guys in my market who are just so clueless and overpromise to their clients constantly on land deals, then also have no ability to market.
They'll flip me a site plan, satellite images they took off Google Maps, a one paragraph description of the deal, and then quote a price just wildly off market. Had one guy tell me they wanted $20pbsf above market for site plan approved land, then he casually mentioned a minute later that there was another $20pbsf worth of shared infrastructure costs the buyer had to assume. The other guy once pitched a complete unzoned deal to me at shovel-ready pricing.
You're not alone, I'm in a different country but they'll have an architect drawn up a 5 minute mega plan/feasibility and then market it at shovel ready prices.
I love a certain variety of statements found in industrial oms about how much population can be reached within a certain number of hours. The longer the drive time in hours they are using, the funnier it is to me. The other day I saw one that hilighted that 30% of the us population is within a 12 hour drive. Only problem is that basically is true for any site east of the Mississippi.
Once had a broker send an OM with pricing based on stabilized NOI in Year 3. Only problem was the property was 25% vacant and had 67% rollover in Years 1-2, with no LOI's pending. Broker said that it was a discount because the land was worth that much alone.
Honestly an 8 cap is near impossible to find on in place numbers. I mean you are talking straight up ghetto areas or something so bad that most buyers are not willing to touch.
As for the most outrageous claims, I can't think of one single one, but the most common and most annoying ones are where they say you can increase rents by $600 per unit. The problem is the subject property is a Class B built in 1965 with maybe a fitness center whereas the comps they are looking at are Class A, 2015 or newer and have every amenity you could imagine. Then the brokers tell me its easily doable, just replace the tennis courts with some fire pits and mini golf and boom people will pay $600 more for a shitty looking apartment.
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