The 250 year loan seems weird. Maybe they meant month?
I haven't reviewed the deal in detail, but it could happen. It's only 7.6% a year raise. With a 3% raise each year for inflation and a 4.6% through forced appreciation (value add and raising rents) then it doesn't seem too out of line.
I would recommend doing a little more research on the deal. If market rents are rising in the market and the current apartments are below market rent, then it would make sense.
Sent from my iPhone using Tapatalk
No I'm pretty sure it's 250yrs. Loan amount is $2.7m with an interest rate of 4.72%. Payment per period (12 a year) comes out to $10,620.08 which, per year, is $127,441. $127,441 is listed in their financials as "Annual Debt Service" so the numbers match up. Seems pretty weird to me though regarding the 250yr loan... not sure where it originated from.
But yea, this is in the Phoenix area - they're anticipating job growth and their projected rents are like 60% more than current rents.
At that rate and payment, it's a 15 year loan which sounds more accurate.
If the rents are 60% more, then that's 6/7 of the forced appreciation right there. Inflation and market rising rents should take care of the rest.
But, do due diligence. I like to refer to proformas as "this is how we lie to you documents" lol. But if you can look at comps in the area for rent and can validate the rents, then go for it, sounds like a great deal. However, if their numbers are coming from cap rate compression, i.e. They are buying at a 7 cap and selling at a 3 cap when market cap rates for fully stabilized remodeled units are 5 caps, then you should be skeptical of the exit assumptions.
How does that work in terms of it actually being a 15yr loan?
Good point on the comps - I haven't really checked around for comps in that area. What's interesting about this syndication is that they were supposed to close the investing round back in March or April. I keep getting emails from them about this where they've now pushed the latest round back to June. This syndication has been particularly aggressive with repositioning apartments in the Phoenix area - it sounds like they've done some already. But I'm not clear on the details of what these "rounds" are actually for (is it per apt complex they acquire?). Furthermore, they're referring to the overall investment as a "fund" which comes off sounding a little odd. Are all these buzzwords *normal* for a syndicator to be using? Or is it just marketing lingo they use to make their company sound more professional when they don't really have to?
With the balance, payment and number of payments provided by your data, I used a financial calculator to calculate the term given those parameters and it worked out to just under 15 years.
Hmm, most funds I know of invest in more than one property. However, I believe if someone is advertising a fund, then it would be subject to SEC filing. I've looked at several funds I invest in and they are all registered with the SEC.
Funds can be structured differently, but sometimes they have capital calls when they need money. The way this works is that if you invest in a fund, and let's say the fund opens, but hasn't acquired anything yet, you may be asked to commit to a certain level, say $50-100k, but they might not ask for it right away. They may instead do capital calls when they need the funds. I suspect this is what's happening, but you should be able to find out if you read the private placement memorandum.