Most outrageous claims in an OM?

maineiac42's picture
Rank: King Kong | 1,130

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?

Comments (17)

Sep 20, 2017

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.

    • 1
Sep 20, 2017

This is exactly why I have not purchased any thing in the past 2 years. Everything is way overvalued.

Sep 20, 2017

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.

Sep 20, 2017

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...?

Sep 20, 2017

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.

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Sep 20, 2017
youngunner:

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...?

no he's saying the 5 cap is pre-value add

Sep 20, 2017

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.

Sep 26, 2017

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.

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Best Response
Sep 27, 2017

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."

I come from down in the Valley, where Mr. when you're young, they bring you up to do like your daddy done.

    • 10
Sep 27, 2017

.

Sep 28, 2017
JohnDon:

Just take my banana

Phrasing...

    • 4
Sep 28, 2017

This makes me feel "less than".

I come from down in the Valley, where Mr. when you're young, they bring you up to do like your daddy done.

Sep 28, 2017

Link to this guy's loopnet or something.

Sep 29, 2017

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 come from down in the Valley, where Mr. when you're young, they bring you up to do like your daddy done.

    • 4
Sep 27, 2017

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.

    • 2
Oct 2, 2017
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