4 ms·
When you say the deal will lose money, do you mean that (1) the project’s operating expenses exceed its income, (2) the building can’t be satisfactorily recappe
by nocoiner 4y ago
When you say the deal will lose money, do you mean that (1) the project’s operating expenses exceed its income, (2) the building can’t be satisfactorily recapped after completion/stabilization, (3) the MOIC at exit will be less than 1.0x, (4) the investor won’t receive their full preferred return or (5) the sponsor won’t earn any promote?
I could see any of these as being a way to describe a deal that “loses money.”
- eagleinparadise 4y agoI was modeling a 2-3% IRR on aggressive numbers when I last worked on it. It was acquired with a proforma 18% IRR. Whenever it's sold, it's going to return less than 1.0x. Not sure how bad the loss will be. Even if it is recapped, the deal will require a significant cash-in refinance. If the business plan is saved and it takes you another 4 years to exit at a better number, that 4-yr now 8-yr deal results in say a low single digit IRR. Sponsor makes no money and the project sucks up even more resources & labor. But depends if your capital partner is willing to ride it out and if you can even recap where the numbers work
- nocoiner 4y agoSorry for the late reply (not sure if you’ll even see this) but thanks for the response. Oof, yeah, that’s a tough one. Definitely think calling that project a money loser is a fair characterization. Sorry to hear about it, the CRE guys I know are all pretty damned smart and incredibly hard working and it’s nonetheless a tough business for them. Though if one has the chops, not a bad “get rich slowly” scheme, lol.