Friday, should be any easy day…right!
I started out with a 10 am to go over a new underwriting product. When you need to model a property, especially a larger property you need some type of financial modeling software. For years the Behemoth was ARGUS. Argus is great, you can model anything and figure the cash flows, value, partnership distributions, all kinds of really cool stuff. The problem is that Argus is $6,000 to buy outright or you can subscribe for $500/ mos.
What happens when you only need to that type of modeling once or twice a year? You can’t just borrow your neighbors and only the big boys have it in the office. Argus also takes two weeks just to learn how to contact customer support to tell them you don’t know how to do something you learned in the class. So, I am exploring an exciting and very inexpensive alternative that is actually user friendly…more about this later.
Off I go to meet with a commercial lender. Since something on the order of 90-95% of all commercial transaction require some form of financing it would be in your best interest to get to know a few people in the business. Here are a couple of tips one meet the bankers before you need them…and I’ll tell you why. First, not all banks are created equal…big banks like big deals. If you need $250,000 you’ll never get a loan at Bank of America…if you need a billion you stand a chance. Bank’s don’t have an appetite for the same product type. This is one of the reasons you need to be a student of your product type…some banks love multi-family but hate retail. Some banks love industrial but can’t get their arms around apartments.
Second, when bank specialize they know the problems that come up in a transaction and how to handle them. Banks have different lending limits some can lend $3,000,000 some can lend $30,000,000. Some banks have local underwriting and loan approval some have to send it off to Charlotte North Carolina underwriting capital of the world. If lending decision are made somewhere other than where the property is get ready for a wait in fact automatically add at least one month to the closing date.
I met with a lender that can-do loans to $7,000,000 he is local, he underwrites the deals himself and gets it approved by the CEO right here in beautiful, sunny, South Florida…lunch wasn’t bad either.
I met with a convenience store seller who wants $750,000 for a $600,000 asset a package. A building that needs a roof, a business in decline, and an owner that is out of time, energy, and most importantly money. Pretty much a losing proposition…but he is convinced that someone will pay him for the upside. Why would anyone do that unless the upside we so enormous that the risk was worth the out sized gamble.
Think about would you pay $90,000 for a business that makes $80,000 a year net and if your correct and get everything right you could make $140,000 next year? What you just did was bought yourself a job…who is going to manage your new investment? Who is going to work your new investment to increase profits and lower expenses…you! And if you’re correct you will be able to pay your debt and take home $80,000.
Don’t invest based on the greater fool theory!
Last but not least I met with my client for the 30,000 square foot entertainment center and he brought along a proposed new investment partner. Did you ever meet one of those guys from New York with the moussed hair, shirt open to his navel, and wearing about half a gallon of cologne? You know the kind of “turd” when shake hands your first reaction is to wipe your palm on your pants leg and then rush home to take a shower. Now, I am sure I am overreacting, I’m sure he is a fine gentleman and sound business person. OH, that’s right the Prospect called to apologize and say he had no idea this guy was coming and that they had nothing to do with him. What a world class turd!
Anyhow, we showed the space and our tenant likes it he is doing the budget now and baking the $30/sq. ft. rent into his pro-forma. You have to do a lot of entertaining to pay $50,000 in base rent plus another $8,000 in CAM charges. The good news is this guy has been in the business 30+ years and has 9 operating centers across the South East.
So, as you can see my Friday coast into the weekend…didn’t exactly coast!