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I wanted to share the details of a deal my CREE acquisition team recently tried to acquire to illustrate how small adjustments in assumptions have a material impact on return projections and, ultimately, offer price. For this deal, the “whisper price” from the broker was $17M, and after reviewing the property and T12 financials, we underwrote the deal and submitted an offer of $14M. Our offer was quickly rejected after they received a full price offer. This left us scratching our heads. What is the winning buyer modeling for key assumptions? What could we have changed to hit the same returns at a full price offer? From the table below, you can see that simply changing the exit cap to 5% from our assumed 5.6% doesn’t get the IRR up to our minimum 15% as it only increases to 9.7%. What else could we have changed? |
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Also, unlike some areas of the country facing declining rents, San Antonio continues to see rising rents. In our Sedona asset, we are still seeing rents rise 4-5% on an annualized basis. Despite this promising outlook, San Antonio is seeing very few transactions in multi-family, with volume down 60% year-over-year. Of those deals that closed, the average price per unit was $152K, which is up 12% YOY. The only deals happening are distressed opportunities like The Regatta, which we are currently raising capital for and plan on closing by the end of the month. We believe we are acquiring a gem (in need of TLC) for a steep discount at $100k per door. |
