January 19, 2022
Have you ever been in a conversation with someone and asked them what they do and this happens?
You thinking, "They are using words and these are clearly English words but I have no idea what they are talking about". Yeah. Me too. So, when someone asks me what I do I need to be very clear that "We buy and reposition underperforming assets to create legacy properties within tertiary MSAs of at least 50,000." And then I need to go on as I see their eyes glazing over with excitement by telling them that "When we buy them we make sure the PSA is solid and we strongly discourage re-trading on the assets we pursue."
Ok. So, what does that mean in plain English? Well, we buy and update apartment buildings to hold long term within metropolitan areas of at least 50,000 people. And, we buy them by making a strong enough offer that the seller won't expect us to renegotiate the price at a later date.
For some reason industry finds it a requirement to speak in tongues. My accountants will attest that I let them know when my eyes are glazing over and they are losing me. Then they dumb it down so that even I understand. Yep. I tell them when they are talking over my head. Yeah, yeah, even though I am 6' 7". No tall jokes now. Leave those to Mike.
I would like to share a few things you may hear when speaking to syndicators and operators in multifamily. One that is common, now that primary and secondary markets are so highly competitive, is "tertiary" markets. So, here is where it gets confusing. Historically, primary markets were markets such as New York, Chicago, Los Angeles, Dallas-Fort Worth. Whereas secondary markets are those which include Phoenix, Houston, Austin and cities like that. Then some people say that Primary is more than 5 million people, secondary is less than 5 million people, etc. Then we have tertiary markets. So what are those? Well, that too is subjective. Some say less than 1 million people in the metro. Well, Tucson and Salt Lake City have MORE than 1 million people in their respective metros. But, they are still tertiary. I think. I think, therefore I am. Glad to clear that up.
Then there are things like IRR, DSCR, NOI, ROI, T12, RUBS, BTW and so many more acronyms. IMHO, stay away from professorial explanations.
IRR = "Internal Rate of Return" - simply put this is your average annual return over time; as in time of ownership of an investment. The formulae can be complex but the explanation is not.
DSCR = "Debt Service Coverage Ratio" - This is a lender's term for how much operating income, after expenses more than the loan that you need. In other words, for DSCR of 1.25 with a monthly loan payment of $1,000, your net operating income (NOI) needs to be $1,250 a month.
NOI = "Net Operating Income" - This is the number you get after subtracting your expenses from your total income.
ROI = "Return on Investment" - You would take your total returned to you, minus original investment and divide that number by your original investment. The thing to note is this does not take time into consideration as the IRR above did. Don't fret over that now. Maybe some other time when you want to fret.
T12 = "Trailing 12 Months" - In other words, the financial reporting for the last 12 months including rental income and expenses. Or, how the operations were for the last year.
RUBS = "Ratio Utility Billing System" - You will see this on investment offerings and it is in addition to rent. For example rent may be $725 + $50 RUBS per month for a 1 bedroom unit. The RUBS is reimbursement for utilities such as water, sewer, trash as well common area electricity and maintenance.
BTW = "By The Way" - This is a very technical term to let you know that, BTW, that's enough explanations.
Let's get to the Thunder Mountain update.
It's more of the same in more of the units. The electrical is getting run. Windows are being installed. Kitchens are being framed. The sprinkler system is run into many more units. And, more electrical gutters are installed. Even though these are pictures of additional work being done, it may appear to be more of the same. Well, isn't that what I just said?
Here are a couple challenges we have faced. The inspector came to approve the windows and there was a glitch. You see, they said we could frame in the windows as opposed to removing the whole wall. Remember that? If not, scroll back and you will find that previous update. Well, we framed them in wood. The plan calls for metal framing. We are told that as long as the plans change to show wood they can approve them. This is not structural to the whole building so wood is fine. It just didn't match the plans. That will be done soon. It will not delay the project.
Second glitch is with the water hookup to the private water company. It has been an interesting, frustrating, intriguing, mind-numbing process. Now they want to know how often the water will be tested, how much we will use, how much the pool holds... "Stop the presses!" This dedicated water line is ONLY for the sprinkler system. So, those other questions are irrelevant. Our hope is to use 0.00 gallons of water. If we do, that means there was a fire. Since we will use none of it, by plan, we have no need to test it. Methinks, somewhere along the line there was a breakdown and they thought we were tapping into the lines for the WHOLE property. Methinks. We are diving into that as we speak. Not into the water. Rather, into the details. Besides, we don't have access to the water to dive into...yet.
And that is our project from my corner of the globe ~Bruce
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