Question to all the monkeys who work in MF out there: Have you recently seen a dramatic change in DD terms whether it's deposit amounts (hard money up front or just stupid $), DD periods of 10 days or less, contingency periods of 10 days or less, or just other super aggressive/whacky closing terms on larger, institutional deals?
Lately it feels like the typical 30 & 30 has become a thing of the past. My other question to anyone on the principal side is how have you relayed this to your partners and what's been their feedback/ways around on getting more aggressive? I ask because lately I've seen a handful of $100M+ large value-add deals go under contract with 10 day DD's and in some cases hard money day 1. Not sure if this is the new normal or outliers but I can't get my head around some of the things I'm seeing.
I completely get HNW family shops or anyone with discretionary money taking this approach but knowing the capital partners of some groups that are doing this I'm a little shocked...what is everyone seeing?
We've definitely been doing compressed time frames, not offering hard money but getting it on some deals we're selling (sometimes the hard money piece can be disguised and isn't really "hard" due to some contingencies). We don't make offers with hard money and don't really see it from institutional type folks; I see it as way for a syndicator or someone to win a deal but that's a lot of risk.
30/30 is not market right now on larger/more institutional deals. 45 days start to finish is about as quick as we can move generally and still have a loan in place at closing... could probably stretch to 40 but my ops folks would fucking murder me. Theoretically, we could do 20 day DD and close at the end of DD on our line of credit, but we'd still want to lock our interest rate before going at risk.
45 days + Closing is the norm now.
I've seen DD before even having a LOI/PSA but with some sort of agreement to share DD costs (Couldn't test the veracity because we closed).. It was a land, thus mostly market study/Geo/Env etc..but not that pricey..
I just did a couple deals with no DD period. It doesn’t mean that we didn’t do DD but it did mean the seller was able to keep marketing the property while we did it. Most brokers will also try to squeeze a few more bucks out of you before going to contract because of a “better offer on the table” after you already spent time and money on DD.
This wasn’t for multifamily, though.
Keep losing out on deals to hard money. Probably shops like Blackstone, I think we lost out on like 3 deals recently to them. They put up like $1-2M hard money on deals we have been bidding on ($100-150M deal size)
Also seeing DD terms shorten to 15 days, have even seen one group completely waive DD to win a deal. Multifamily pricing seems to be pretty crazy right now, lots of $ chasing not a ton of deals.
We are seeing the same, but losing to family offices that are underwriting 10 year holds. Hard money day 1 of PSA execution, usually getting DD completed through an access agreement while PSA is being negotiated (7-10 days). That is just not enough time for my firm to use this strategy, and even if we could, these groups are underwriting purchase prices at 12-13% IRRs which just doesn't cut it.
No one with institutional money is waiving DD; your LPs would skewer you.
The hard money piece is often fools gold. Folks will put it in their LOI, and it basically plays out as follows:
It all sounds good in theory, but the reality winds up being a little different. That said, some sellers go bananas over it.
Sounds like something I'll try soon
Actually do have examples of some of these outs.....
I work in institutional space,someone tried to get us to waive DD. We said sure, but you are asking for a retrade.
They let it go
In very core markets like NY it's very common. You want to win the deal do all your DD when you get to best and final. 10% hard day one. Sold in As is Condition in MM transactions.
I work on an investment sales team with a healthy pipeline so I'm in the fortunate position of seeing a number of offers. On our recent assignments over $50M, we definitely have seen terms compress, but I still haven't seen many deals with terms alone winning. A buyer with 20 days DD and hard money at PSA is still going to lose to the buyer with 30 days DD but $1M more in purchase price. Once you get to these types of deals with very institutional players, we are typically pretty confident the buyer will close. Maybe it's different if it's the buyers first deal in the market, but assuming they've performed in other markets, we can get comfortable. If you're buying $50M+ deals, you tend to have a track record.
On the large deals $100M+, market is no longer 30/30. As other posters have mentioned, 45 days for DD + Closing is more typical. You'll see it drop even lower for extremely competitive bidding processes. At the end of the day though, price still trumps all other terms.
Final thought, as another poster mentioned, hard money at PSA is more of an optics thing than anything. By the time the lawyers are done redlining in their oxford commas, DD is typically pretty far along and the buyer is comfortable with the deal. I'll be impressed when someone offers $1M at access agreement. This is for existing product, land is an entirely different story.
I love a good Oxford comma.
This is more in-line with the stance our group takes. Price with a strong reputation and solid capital partner will still win the deal most of the time. 45 days start to finish is definitely feasible it's just that hard money part whether it's legalize in the PSA as alluded to above, but actual hard money is still the frustrating part. We were the bridesmaid on a large value-add deal recently where the buyer had an institutional partner (think Blackstone/Carlyle/OakTree) and I know for a fact they went hard day 1 which was shocking. I'd rather keep my job than pitch this to our partner! Either way happy to see the brokerage community is looking at things more rationally than some of the buyers.
Saw a chick with DDs at my apartment complex. Started chatting her up and we really hit it off - I got her number, her eyes lit up when I told her how much money I make. How’s that for multifamily DD haha
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