Updated: Jan 9
As a syndicator and real estate investor, I partner with passive investors and buy large multifamily properties. My company, Blue Lake Capital, purchases multifamily properties (usually 100-400 units), renovates them, improves their Net Operating income (NOI) and sell them after 3-7 years.
While each multifamily property is different, there are some underlying principles that I’ve used over the years, and continue to use because they work. Recently, I closed on a 2-property portfolio in Atlanta. It was a $28M purchase, and while each deal is unique, I wanted to share some of the lessons I learned by going through the process of acquiring this property. Hopefully, you’ll find the lessons useful as you pursue your own deals.
Lesson #1: Choose the Right Lender
I can’t overstate this enough - choosing the right lender can make or break your overall deal. When first starting out, most syndicators go with the lender that offers the lowest interest rates. There is no question that rates and terms are important, but there is more to it than numbers.
The strength of the lender, and the relationship that the lender has with agency lending programs like Freddie Mac and Fannie Mae, is just as important as the terms and rates that they quote you. Let me explain why choosing the right lender is critically important, based on the lesson I just learned on my $28M purchase.
In my previous life as a lawyer, I used to say “you don’t need a contract if everything goes well” – and this is true, because the only time you rely on the contract is when things go south. The same goes for real estate as well. If things proceed without any complications, then the lender you choose is not critically important. But in real estate – things don’t always go as planned or as smoothly as anticipated. That’s where you can run into complications.
You certainly should gather quotes and compare terms, but it’s hard to place a value on a lender who you know will stand behind you and support you when it’s critically needed.
The property’s state (occupancy, Net Operating Income, etc.) tend to change a bit between the time you have the deal under contract and closing. When we found out 2 days before closing that vacancy increased significantly, we knew that though it was still a very strong deal, the new numbers would affect the loan terms. Thanks to our relationship with the lender, and the fact our lender has a strong standing with Fannie Mae, things worked out well. The lender had a direct line of communication with Fannie Mae and was well respected by the agency. This helped us get the loan despite the increase in vacancy, and because the lender vouched for us, they were able to mitigate some of the impact that the new financials had on our deal.
When all is said and done, the relationship you develop with the lender is still the main reason to have them fund your properties. As I learned in my Atlanta purchase, having that relationship was crucial.
Lesson #2: Honesty with Your Investors Goes a Long Way
As I previously mentioned, during the closing process we found that the vacancy rate on the property changed. Even when things don’t go smoothly, never hide information from your investors.