Uptown Properties' Recent Syndication Acquisition
Updated: Jun 26, 2020
Uptown Properties recently completed its first syndication acquisition. There is still a long way to go on the value addition but I was reflecting while on vacation on the purchase and wanted to share some of the items that I believe that we've learned along the way.
Financing is hard. I should probably say that again. The industry is comprised of a lot of salespeople that indicate they can deliver everything for very little. I've yet to have a finance person over-deliver. This investing space for us is a new arena and the people that we've worked within the past don't do business in this space. Consequently, we have to develop new relationships and figure out a new set of rules that need to be played by. We started out with a typical bank lender, they came back a week before the closing date and said, oops, no we can't do it. We then went with a commercial agency and after the appraisal came in (300k above the sales price of 1.3m) said that there was too much work to be done in order to finance it, as it sits it wouldn't be able to be sold on the tertiary market, go fix it up and then come back to us. Hard money lenders, man do we not want to be under the heavyweight of points and high-interest rates, if only for a short period of time. We landed with Adam Hartfeil from Merchants Mortgage that has a hybrid product if you have an investor with some money in the bank willing to guarantee. We had another option with Finance of America, with Joe Conway, that was very similar but in the period of time to get qualified did not pencil out with the terms of the contract which is the next part of this post. Either way, when you are lining up a deal my best advice is to talk to multiple people and have financing contingencies in the contract. As we were putting this together my brother and I would keep asking each other, what if this doesn't work, what next. Each person along the way wanted to recommend someone else that might be able to do the loan, but guaranteed the person they recommended was not going to be anywhere close to what you can find yourself with some additional time. Have those relationships built out first, when you get a deal let them know they are the backup and send them the contracts/addendums. In this case, we had a Plan A, Plan B and had to scramble for Plan C. For us, mostly with new relationships. We're excited to have gotten where we are now and excited to move forward but looking back having some more options in a new space would have been good. If you are just starting out, whether in SFH or Commercial or some other arena, knowing what you can expect from your lenders is key. Again, they are salespeople at the end of the day but finding out what space they operate best in can save you a lot of time down the road.
The next lesson that we learned is having the appropriate contingencies in the contract. When we put the offer in, we knew that the property had quite a bit of deferred maintenance. My brother would argue that if we extended the due diligence period that our offer would not have looked as attractive and I can agree with that. But when our financing falls through because it is in such need of repair it's possible that we could have foreseen this coming. It will probably be written in our subsequent offers that if the financing falls through due to the condition of the property the financing contingency is automatically extended for some period of time. I've heard of some other people that in the case of financing falling through they request to talk directly with the owner. Typically in all deals, everyone wants the deal to go through. We've never not closed a deal, though this was probably the closest that we've come to throwing in the towel. Being able to talk to the other owner and give them the surety that you want to close this and if able to provide proof of your track record may be better coming from the actual source as opposed to through a broker.
All in all, I think that we've learned some good lessons on this first syndication acquisition and that we are very much looking forward to the next one.