7 crucial deal metrics_edited

7 Crucial Deal Metrics

Robb Krautbauer

https://lp.commercialinvestorsdaily.com/lp-pitchbook

https://lp.commercialinvestorsdaily.com/lp-pitchbook


Let’s face it, every piece of communication to a buyer or funding source is an

opportunity for you to look smart or look stupid.

In case it was a question, you want to look smart.

The person you’re sending a deal to is probably smart, so your goal is to think like

they think.

If you’re formally submitting a deal to an institutional investor, there is some key

information that is required to have analyzed before you hit the send button.

That’s what you’re getting today – the 7 crucial metrics you must include in every

deal you submit for review. Check them out and never look stupid again.

7 Crucial Metrics to Include in Your Deal Submission

1. Executive SummaryWhat is the deal about?

What is the situation?

Is there a story?

This gives them a high-level feel for the deal:

Market

Property type

Deal size $$

Debt/equity

What the formal submission is for

Used with permission from TheCommercialinvestor.com/blog

http://thecommercialinvestor.com/blog/


Here is an example:

The Park Ave Apts is a 115-unit garden style multifamily complex located inDallas, Texas. It consists of 12 two-story buildings with an average unit size of1,160 SF.

The Property was recently constructed and is in lease up. It is currently 60%occupied with average rents of $1,400/Unit. The Property includes high-endamenities including direct access garages.

The Borrower is currently under contract to purchase the Property for $35M($304,784/unit). Borrower is required to close within 30 days. The requestedloan amount is $26.25M (70% LTV), with the funding to coincide with thepurchase.

The borrower is a JV between Partner 1 (5%) and Partner 2 (95%). The Partner 1will be the controlling member and property manager.

Simple, high-level, to the point. After reading this, every investor has enough

information to make a choice: keep on reading, or pass if it’s not a fit.


http://thecommercialinvestor.com/7-deal-metrics/


2. Deal MetricsNow this might differ slightly whether debt or equity but the fundamentals are

the same. Key deal information in a table format.

Clean and simple.

For debt, I’d make sure we have this information at minimum:

Loan Amount

Term

LTV

Debt Yield

Rate Type (Fix / Float)

Interest Rate expectations

DSCR off of proposed rate

For equity, I’d make sure we have this information at minimum:

Price $ (Expectations)

Cap Rate

P/SF, P/Unit

Occupancy

Trailing 12 NOI

Year 1 NOI

Unlevered and Leverred IRR (5, 7, 10 Years- or whatever horizon your

investor typically does)

3. Property InformationLocation, location, location!




Make sure you have the address and maybe a little information about the

property. This is real estate.

Also, be sure to describe the property: construction type, amenities, etc.

Here is a great example of a property description for a luxury apartment building

in a major city (doesn’t have to be as detailed as this but more is better):

The property’s main entrance includes a well landscaped circular drive and a two-story lobby with terrazzo floors, and marble and wood paneled walls.

The apartments for rent here all feature generous oor plans, with one-bedroom,two-bedroom, three-bedroom, and four-bedroom units. The nished ceilingheight is 8 feet. Apartment walls are painted sheetrock and oors are oakparquet. Most of the apartments feature marble bath/powder rooms with new

xtures and kitchens improved with new cabinetry, granite counter tops andstone tile flooring.

Appliances include refrigerator, dishwasher, oven/range, microwave and hotwater dispenser. There are large walk-in closets in every unit.

In 2015 renovations were undertaken to all public corridors including new carpet

and wallpaper.

The building is constructed of reinforced concrete with a brick and masonryfaçade.

Heating and cooling are provided by a central plant with individual unit fans ineach apartment.

There are five passenger and two service elevators.




There is an on-site parking facility and attentive 24-hour doorman service,closed-circuit TV security system, and valet and maid service.

The custom-designed children’s playroom is well stocked with toys and games.

The property’s fully equipped tness center is similarly well-appointed withstate-of-the-art cardio and strength-training equipment.A lush green rooftop sun deck offers striking views of the city below. There is alsoa resident storage area.

4. Property Financials and PerformanceNeed to see a few years of operating data if available.

You should be able to provide a breakdown of revenue and expenses to get the

NOI number for at least the last year. Try to get a few years of data if you can.

Recent leasing information is great too especially if it’s an of ce, retail or

industrial building.

For of ce, retail, industrial, make sure there is a rent roll with detailed

information about their leases, such as:

Lease expiration date

Rent

Rent bumps

5 . Borrower Business Plan/ Sources And Uses (for Debtrequests only)

Example:

Borrower plans to repay existing debt in the amount of 10mm. In addition, theborrower plans to make substantial improvements to each apartment unit.




The borrower plans to update the apartments in groups of 20 at a time. Theborrower will give tenants notice and give them ample time to relocate.

The scope of the work for each of the apartments will include an update to theheater/cooling system, new kitchen appliances, cabinets, and counter tops, newceilings in living room with recessed lighting and updated electrical and newtub/shower and vanities in the bathrooms.

Estimated renovation cost per unit is $13,000. Down time for the 20 apartmentsis expected to be approximately 3 months for work plus 2 months for lease-up.

While working on the apartments in groups of 20, borrower plans to provideupdates to common areas and hallways: new wallpaper, new carpet, new paintwhere applicable. Also new landscaping to provide a more open, cleaner lookingapartment complex.

6. Sponsor Background/ Track Record (for Debt requestsonly)




7. Any Market InformationIf available.

Major employers, new supply, rent growth expectations. You can nd lots of good

free information by going to large brokerage sites and looking for a research

section: try Marcus and Millichap.

Now there is always more or less you can provide. And there are de nitely

relationships you have or will have where you know they want/need something

specific so you can always add it in there.

In general, this is how the real pros generally like to look at their deals. If you’re

bringing someone new a deal and it’s in the above format and has all

pertinent deal information, you will be taken seriously and will you have instant

credibility.

Not to mention, sticking to this format provides you with a checklist to ensure

that you are doing a thorough initial analysis on the deal to make sure it is attractive.

Your clients will notice and it will get you on their preferred list.

Heck, you may even want to start expecting holiday cards and gifts in the mail!

Now go forth and prosper!


http://www.marcusmillichap.com/



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