investing in multi-family real estate

© 2016 DailyDAC, LLC d/b/a/ Financial Poise™ 1

REAL ESTATE INVESETING 2016INVESTING IN MULTI-FAMILY REAL ESTATE

Premier Date: October 26, 2016

REAL ESTATE INVESTING 2016

INVESTING IN MULTI-FAMILY REAL ESTATE

Premier Date: October 26, 2016

2© 2016 DailyDAC, LLC d/b/a/ Financial Poise™

WE WOULD LIKE TO TAKE THIS OPPORTUNITY TO THANK OUR SPONSORS

3© 2016 DailyDAC, LLC d/b/a/ Financial Poise™


meet the facultyPANELISTS

Tracy Treger Syndicated EquitiesPaul DeWoskin DKD Development PartnersTammy Kelly Redwood Capital

MODERATOR Bill McGuinn

Sugar Felsenthal Grais & Hammer


Practical and entertaining education for business owners and executives, accredited

investors, and their legal and financial advisors. For more information, visit

www.financialpoise.comDISCLAIMER: THE MATERIAL IN THIS PRESENTATION IS FOR INFORMATIONAL PURPOSES ONLY. IT SHOULD

NOT BE CONSIDERED LEGAL ADVICE. YOU SHOULD CONSULT WITH AN ATTORNEY TO DETERMINE WHAT MAY BE BEST FOR YOUR INDIVIDUAL NEEDS.

http://www.financialpoise.com/


about this webinar

Apartment buildings and other multi-family housing can provide a stable income to an investor. This Financial Poise webinar discusses some of the pros and cons of being a landlord. It provides a basic overview about how to find and assess opportunities, obtain financing, negotiate a deal, and manage a multi-family investment. The accounting, tax, and legal aspects of being a landlord are part of the discussion.


about this seriesReal estate has always been a popular asset class for investment. After all, as the adage says, “they’re not making more of it.” Investors considering making an investment in real estate have a variety of choices: retail, office buildings, industrial, raw land, and, of course residential. More and more investors are turning to the real estate market to invest their funds. This Financial Poise webinar series will cover several types of real estate classes that one may choose to invest in, explaining where to look for opportunities; how to diligence them; and best practice for execution.

As with all Financial Poise webinars, each episode in the series is designed to be viewed independently of the other episodes, and listeners will enhance their knowledge of this area whether they attend one, some, or all of the programs.


episodes in this series

Dates above are premier dates; all webinars also available on demand

EPISODE #1 Investing in Residential Real Estate 9/21/16

EPISODE #2 Investing in Multi-Family Real Estate 10/26/16

EPISODE #3 Investing in Commercial Real Estate 11/30/16

EPISODE #4 Investing in Real Estate through Crowdfunding 12/14/16


AdvantagesPOTENTIAL ADVANTAGES AS COMPARED TO SINGLE UNIT INVESTING• Cash flow• Rental diversification• Economies of scale/ affordability of

professional management• Use of more leverage• Less competition (not competing against

owner-occupiers)


Sustainable GrowthSteady economic growth and key drivers will keep the multifamily market moving forward in 2016.• Multifamily rental demand kept pace with the large wave of new supply in 2015

and will remain strong into the foreseeable future.

• Favorable demographic trends, strength in the job market and reduced affordability of owning a home will continue to fuel strong demand for multifamily rental units.

• As more supply enters the markets, the national vacancy rate will increase slightly, but it will remain less than the historical average through 2016. As a result, rent growth will remain strong until new supply can catch up with demand.

Source: http://www.freddiemac.com/multifamily/pdf/freddieMac_mf_outlook_2016.pdf


Sustainable Growth Cont’d• In 2015, 306,000 multifamily units were completed and entered the market –

the most in a single year since 1989. The level of new multifamily supply is expected to remain elevated over the next few years, given that the number of new construction permits rose again in 2015.

• The labor market added 2.7 million jobs and is near full employment as the unemployment rate finished 2015 at 5 percent. The strengthening labor market will put upward pressure on wage growth in 2016.

• Despite the Federal Reserve’s decision to increase interest rates in December 2015, multifamily property price growth will remain strong and capitalization rates will not be significantly affected in the short-term.

• Multifamily origination hit record volume in 2015. Source: http://www.freddiemac.com/multifamily/pdf/freddieMac_mf_outlook_2016.pdf


Historic Growth rates


Property ConsiderationsFACTORS TO CONSIDER IN SELECTING A MULTI-FAMILY

BUILDING• Location – proximity to public transit,

schools, shopping

• Amenities of property

• Condition of property


Economic Due diligence tips• Determine market rates for similar properties in same area• Determine vacancy rates in area• Determine costs for repairs/painting when typical tenant

vacates• Estimate operating costs• Fixed expenses – obtain copy of seller’s insurance policy,

property tax bill, utilities bills, management company bills• Variable expenses – obtain property’s financial statements

& compare to actual invoices. Consider cost to eventually replace roofs, HVAC, etc.


Key considerations• Tenant turnover• Collections• Maintenance• Rule of thumb – any building with 20+ units will

support cost of professional management and a live-in manager; 10-20 units will usually only support a live-in manager; < 10 unites usually require owner to manage

• Potential for appreciation• Discounted price• Fixer upper• Rezoning potential


Expenses to consider• Advertising• Cleaning and maintenance• Commissions paid to rental agents• Home owner association/condo dues• Insurance premiums• Legal fees• Mortgage interest• Taxes• Utilities• Management fees


Key contract provisions• Contingencies – inspections and attorney review• Tax proration – make sure you understand local taxes,

payment and reassessment dates• Seller reps and warranties• Required condition of title• Default and remedies• Amount of Earnest Money required and who holds• Proration of Rents and assignment of Security Deposits• Assignment of leases and collection of rents following

closing


Title and survey considerations• Boundary line issues – (Insured over by title?)

• Easements (must be reviewed and understood)

• Liens - should be released at closing

• CCR – covenants, conditions and restrictions of record – should be reviewed and understood

• Condo or homeowner’s association documents – any restrictions on leases/sales.

• Tax status.


How to take title

• Personally?• LLC, Partnership or corporation• Advantage is limitation of liability to assets

of the entity• Holding title personally is never

recommended• Lender issues with holding in an entity


considerations if self-managing• Leasing strategy – How will building be kept occupied? Cost

of leasing. Understanding Landlord-Tenant laws.

• Repairs and maintenance – Do you have time? How will tenant issues be handled?

• Property tax assessment monitoring and appeals.

• Capital Improvements/Construction: Who will monitor and assist when larger items need to be addressed?


Financing• Commonly based on property’s ability to generate

income as opposed to buyer’s credit

• Sometimes such investing is encouraged through favorable financing regs

• Leverage – pros and cons~ Average down payment = approximately 30%

of purchase price~Amount of equity invested can change risk

profile


Cap rates• If you collect $1,000,000 in rents and other income

(i.e. vending machines) and pay $600,000 in expenses (excluding major capital expenditures), your “Net Operating Income”is $400,000

• Once you have the NOI, divide the price or value of the property into it. For example, if you have $400,000 in NOI, and you paid $4.8 million for the property, the Cap Rate is = 8.33%.


Cash on cash return• If you have a mortgage, your return isn't the money you collect in

your NOI. It's what you have left after making your mortgage payments

• To calculate your after-debt return, called a cash-on-cash return, you divide that net cash flow by your down payment. If you put $700,000 down on that $2.4 million property, you would owe $1.7 million

• If your annual debt service was $130,000, and you took it out of the $200,000 NOI, you would end up with a $70,000 annual cash-on-cash return

• When you relate the $70,000 to your $700,000 down payment, you would end up with a 10 percent cash on cash return


Generating an operating proforma• Revenue: Rent and other income (parking, utility reimbursement, etc)• Expenses: Property Taxes, Insurance, Repairs & Maint, Turnover Costs

(leasing & make ready), Landscaping, Utilities, Contract Work, Legal, etc.

• Net Operating Income: Revenue less Expenses (NOI:Purchase price creates a cap rate value)

• Financing Expenses: Interest, Principal, Reserves• Capital Expenses (roof, windows, appliance replacement, major repair,

etc.)• Cash Flow: NOI less financing costs and Capital Items – when created

for a predicted investment hold period, a DCR analysis can be completed.


Alternative to cap rateA Discounted Cash Flow analysis assumes an investment for a period of time, and discounts it back at an investment rate. This can be analyzed as an IRR or Net Present Value. Ignoring the NPV for now, the IRR allows one to determine the return of an investment over a period of time. The calculation includes the initial investment, a projected end value for the investment and all of the distributions in between. While it has some faults, it can be a more accurate tool than a cap rate.


More About The Faculty

D

BILL [email protected]

Bill’s real estate practice extends to the acquisition, development, sale, leasing and financing of commercial, office, residential and retail properties.

In his affordable housing practice, Bill has represented owners and developers of thousands of housing units in numerous states with multi-layered financing including taxable and tax exempt bonds, low income housing tax credits, HOPE VI, Community Development Block Grants, Neighborhood Stabilization Program funds, Tax Credit Assistance Program and Tax Credit Exchange Program.

Bill has also represented developers of conventionally financed projects, both residential and commercial. He also guides buyers and sellers, landlords and tenants through all aspects of their respective transactions.

Aside from real estate matters, Bill has worked with numerous closely held businesses on a variety of matters including representing business in obtaining credit facilities, structuring start-up organizations and the purchase and sale of a number of business entities.

Bill is an avid sailor and participates annually in the Chicago Yacht Club Race to Mackinac. Bill has also competed in the Transpac, racing from Long Beach, California to Honolulu, Hawaii.



D

PAUL [email protected]

Prior to joining Michigan Avenue Real Estate Group in 2010, Paul DeWoskin spent the previous 17 years of his career acquiring, developing and managing real estate as a principal and on behalf of local and institutional real estate companies.

From 1997 through 1999, Mr. DeWoskin was the Vice President of Acquisitions and Development for Parkside Senior Services, L.L.C. where his responsibilities included the acquisition, financing and development of independent and assisted living units throughout the United States. During his time at Parkside, Mr. DeWoskin successfully completed transactions of over $125 million and 1,000 units. After leaving Parkside, Mr. DeWoskin, with two partners, founded DKD Development Partners, LLC.

From 2000 through 2008, DKD Development Partners acquired, developed and operated nearly $125 million in developments in Chicago and Madison, Wisconsin. In 2005, Mr. DeWoskin helped found Hazel Ravine Partners, LLC, a boutique financing firm specializing in delivering capital ($250,000 to $2 million) to real estate developers and entrepreneurs. Hazel Ravine Partners completed nearly $20 million in transactions from 2005 through 2007.

Mr. DeWoskin spent the first five years of his career with Broadacre Management Company where his responsibilities ranged from the project manager and partner of a 30-Unit luxury townhome development in Evanston, Illinois to the development and asset management of nearly $200 million in residential and commercial real estate.

Mr. DeWoskin holds a B.S. in Government from Skidmore College (1990) and a M.S. in Real Estate Appraisal and Investment Analysis from the University of Wisconsin-Madison (1993).



D

TRACY [email protected]

Tracy Treger is the Senior Director of Corporate Strategy at Syndicated Equities. Tracy helps high net worth individuals and family offices to profitably invest in real estate. She also assists investors in identifying appropriate replacement property to complete tax-deferred exchanges under Section 1031 of the Internal Revenue Code. Drawing upon her 20 years of legal experience in the areas of real estate, bankruptcy and corporate restructuring, finance, and commercial law, Tracy seeks out opportunities to improve the relationship between Syndicated Equities and its investors, to cultivate new investors, and to identify new investment opportunities and align them with investors' goals. Tracy joined the Syndicated Equities team in 2013 after serving as vice president and assistant general counsel for a private REIT, where she handled all legal aspects of the company’s daily operations and its joint venture relationships in the U.S. and Mexico. Prior to working with the REIT, she was a partner in two large Chicago-based law firms with national and international practices. Tracy holds a B.A. in Psychology and an M.S. in Psychological Services from the University of Pennsylvania, and a J.D. from Chicago Kent College of Law. She actively serves on both the National Commission and the Regional Board of the Anti-Defamation League and the Chicago Regional Board of the Jewish National Fund.



DTAMMHTAMMY

TAMMY [email protected]

Tammy is a Senior Vice President of Asset Management at Redwood Capital Group.

Ms. Kelly, CCIM, CPM is responsible for oversight of all asset management, including budgeting and capital expenditure requirements, as well as all strategic dispositions. She also assists with sourcing and underwriting the firm’s investments. Ms. Kelly optimizes value by managing with strategic oversight and by identifying and seizing market opportunities thereby maximizing asset values.

Prior to joining the Firm, Ms. Kelly was Senior Vice President at Blue Vista Capital Management from 2006-2014 where she oversaw a multi-million dollar commercial real estate portfolio consisting of various asset classes. Ms. Kelly’s asset management responsibilities at Blue Vista included executing on strategy and monitoring asset performance, as well as serving as the liaison with the Firm’s operating partners. Prior to her tenure at Blue Vista Ms. Kelly spent a year at Equity Investment Group where she was responsible for overseeing, coordinating and evaluating the company’s property acquisitions, which consisted of closing over 2 million square feet of retail shopping centers. From 1999 to 2005, she worked as a senior property manager for both Equity Investment Group and New Plan Excel Realty Trust where she managed retail shopping center portfolios in excess of 1.4 million square feet, respectively.

Ms. Kelly received a B.A. from DePaul University. She is an active member of CREW Chicago, The CCIM Institute, and IREM.

Visit www.eisneramper.comEisnerAmper. Let's Get Down to Business®

EisnerAmper LLP is a leading full-service advisory and accounting firm, and is among the largest in the United States. We provide audit, accounting, and tax services, as well as corporate finance, internal audit and risk management, litigation services, consulting, private business services, employee

benefit plan audits, forensic accounting, and other professional advisory services to a broad range of clients across many industries. We work with high net worth individuals, family offices, closely held businesses, start-ups, middle market and Fortune 500 companies. EisnerAmper is PCAOB-registered and provides services to more than 200 public companies and to thousands of entities spanning the hedge, private equity, brokerage and insurance

space in the financial services marketplace. As companies grow we help them reach their goals every step of the way. With offices in New York (NY), New Jersey (NJ), Pennsylvania (PA), California (CA), and the Cayman Islands, and as an independent member of Allinial

Global, EisnerAmper serves clients worldwide.

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Important Notes

• THE MATERIAL IN THIS PRESENTATION IS FOR GENERAL EDUCATIONAL PURPOSES ONLY.

• IT SHOULD NOT BE CONSIDERED LEGAL, INVESTMENT, FINANCIAL, OR ANY OTHER TYPE OF ADVICE ON WHICH YOU SHOULD RELY.

• YOU SHOULD CONSULT WITH AN APPROPRIATE PROFESSIONAL ADVISOR TO DETERMINE WHAT MAY BE BEST FOR YOUR INDIVIDUAL NEEDS.