Acquisitions Folks - How active is your current pipeline?

Wanted to touch base and have a discussion regarding deal pipeline. How active are your groups? When was the last time your group closed a deal? If not very active, what have you been doing in your downtime?

Would be helpful if you could list:

  1. Are your deals debt or equity
  2. Main market(s) your team is currently investing in
  3. Product type(s) your team tends to focus on
  4. Where on the risk spectrum you are currently seeing deals (opportunistic - core); would also be helpful to list your target return metrics (IRR, multiple, etc.)

Feel free to add anything else. Would like to get a sense as to what you are all seeing in today's current market conditions.

Comments (33)

Jul 7, 2016
  1. Our shop plays in both debt and equity (I'm on equity side).
  2. Currently investing in high growth secondary markets where yields still exist--primary markets have been tough and asking prices are way above what we are willing to pay. We usually try to time our buying on the downturn.
  3. Office, market rate apartments, grocery anchored retail, industrial, MOB
  4. Most of the stuff we've seen falls into Core+ (6-9% levered IRR in Y7) and value add (10-13% in Y5). We also capitalize development deals and only see 13%+ levered IRR this way. Lending has started to effect development deals--I think the global chaos has made banks more cautious.

We are (fingers crossed) closing two in the next 4-6 weeks. Currently in due diligence. We spend our downtime by modeling the returns on deals that seem to be good and end up not being so good, and improving internal files for use in the future.

Jul 8, 2016

A lot more active debt side

Jul 10, 2016

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Best Response
Jul 11, 2016

Where the fuck are you buying 6% in place caps for MF on the west coast? Fresno?

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Jul 11, 2016

Haha, my guess is that the properties are smaller (<$10M) or it would attract more players.

Getting to a CoC of 10%+ suggests a pretty high level of debt (more than 65% LTV).

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Jul 12, 2016

I don't know where in the hell you're finding 5.25%-6% in place caps, but I would stroke a broker under the table for a deal like that. Are you reaching out to owners directly?

What hold period is your IRR/CoC underwritten to? We UW a 12% IRR to investor capital (HNW syndication) and a minimum 5.5% 5 Year Avg CoC. This is in core LA markets where most properties are trading at a sub 4 cap all day.

Jul 12, 2016

We are in the suburbs of major west coast cities. These are broker marketed deals.

Hold periods are 10-15 years (matches the debt term).

Jul 11, 2016
  1. Equity and structured debt
  2. We have live deals in Chicago, Salt Lake City, Orlando, and Miami, but we look at primary and secondary markets from the east cost to as far west as SLC.
  3. We primarily focus on multifamily, office, and industrial, but will also look at retail and hospitality deals. All our deals are either development or value add.
  4. We are starting to see a slow down in new development transactions. I believe this is largely due to the increasing construction costs, but things generally slow down for us in the summer as well. There are a lot of value add plays in the market right now, but the sale process has been extremely competitive and has made it difficult to hit our returns. Across all our transactions we look to hit an average IRR of 14% - 16% over a 3 - 7 year investment period.
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Jul 13, 2016

The slow down in the development deals is a result of there being...no construction money out there. Drying up faster by the day. We're living in an ozarks world right now.

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Jul 14, 2016

Bank of the Ozarks is making a killing right now. They are cherry picking their favorite deals and charging rates that would have been laughable 12-16 months ago.

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Jul 14, 2016

Brazilian overall M&A boutique for companies ranging from 15 mil up to 200 mil in sales. There has been a lot of small deals given the bad scenario here and companies looking for consolidation. But the larger deals are basically on hold until some sort of stability. I don't know if we are going to have any large deal closed this year, but we do have 3 large active ones.

Jul 14, 2016

This is a bummer to here regarding development deals and construction money. I'm brokering the largest sale of my career right now. Brought in an EB5 player on an off market fully entitled 1.7mil sqft development. It's not under contract. That could take months. I imagine things will deteriorate further by then. Closing on deals like this could take 6mo to a year. Ugh...

Jul 14, 2016

Sadly, at this point you just have to pray for a closing regardless of how long it takes. We have several excellent construction deals in the market right now and it's a nightmare despite the fact that the deals are top notch (A+ institutional sponsors, A+ locations, and fantastic economics).

Whatever you all do, avoid syndication at all costs in the current market environment. If it's not a death sentence for the deal in the first place, you can count on significant retrades down the syndication path.

Jul 15, 2016

How do you mean re-trades? Like with the ppl u put in the deal for a better split?

Jul 14, 2016

Centennial is playing in the spec dev space as well... albeit at rates higher than Ozarks.

The Mezz scene is insane, but BOO still is where the A-piece ends up 99% of the time so they're the key.

Jul 15, 2016

We're taking a step back on the offense for a bit.

  1. Equity
  2. Nationally - coast-to-coast; primary, secondary, and tertiary; anywhere that gets us our risk-adjusted returns
  3. All property types. One exception - we have a big anti-malls policy
  4. Opportunistic - 18%+ IRRs... development, repositionings, et

I've seen a ton of retrades - not specifically in the past month, but certainly YTD. Most of the time in our (and many) group(s) falls in asset managing current investments.

Jul 17, 2016

In commercial lending all bets are off as far as commitments. Even post funding things can change. Especially if construction. Just cause you have, say, $1mil in interest reserves doesn't mean the bank has to fund that.

This happened a lot in 2009/2010. Banks wanted to be in position for TARP money. Thats why credit lines and unfunded dollars were getting pulled back. I had a client with $500k in an interest reserve due to him. It was about 12mo of payments. But the bank wanted the $500k to not be allocated to a borrower. They wanted it in reserves to shore up the balance sheet for acquisitions through FDIC. They prob did this hundreds of times to be more solvent.

It's not a retrade by traditional definition but more like getting fucked.

Jul 17, 2016

Not sure I understand this. Can you elaborate on a bank not being required to fund interest reserves?

If you're developing a project and the lender approved X dollar budget inclusive of interest reserves in the loan agreement, how can they decide not to fund?

Jul 18, 2016

It's as simple as the bank not deciding to release the funds. It's unfunded dollars. They are not obligated. It happened all over the US.

It's the same as getting a $50k credit line and the line getting cut off at $40k.

Jul 19, 2016
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