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5 Oaks Transaction Key Takeaways
September 12, 2022
A few weeks go, we closed our latest acquisition, 5 Oaks, a 228-unit multifamily property in Houston. We learned a lot from this deal (as always), but this deal in particularly taught some very interesting lessons. Here are my 3 takeaways:
I mentioned this in our last closing but the debt markets remain difficult to navigate. We are experiencing lender retrades and are hearing about more in the market. It is difficult for buyers to confidently bid their top price if they are worried about debt terms changing in escrow.
It’s not completely lenders’ faults however. In the last year, interest rates and rate expectations have changed dramatically due to persistent inflation and the Fed changing their stance on the same. A key takeaway on 5 Oaks was the value of persistence. We never gave up in the face of adversity and all partners involved kept a cool head and a positive attitude. In light of our lender changing terms on us last minute, painful compromises were made. However, my partner, Kent Piotrkowski and I maintained our long-term outlook and were more focused on closing the deal rather than trying to maximize our share.
Another recurring takeaway is related to 1031 exchanges. As mentioned before, 1031 exchanges are a big part of our business. We have many investors who 1031 exchange into our investments with us, with exchange sizes ranging from $500k to over $10MM. We take pride in being a great option for 1031 exchange investors looking for a passive investment in a professionally managed deal.
The most difficult aspect of bringing in 1031 exchanges in our deals is negotiating with the lender. Every lender’s requirements related to 1031 exchanges and tenancy-in-common structures are different. We have learned to have these conversations up front with potential lenders and 1031 exchange investors so all parties have clear expectations. Inevitably, complications come up so we work hard to accommodate both sides through creative solutions.
The last takeaway from closing our 5 Oaks acquisition is that deals and their participants (investors, lenders, buyers, sellers, brokers) are much more than their numbers. While numbers can be simply black and white, deals are not. Deals are made up of people which take far more into account than just the numbers. This means that dealmaking requires an extra layer of effort when the going gets tough because emotions come into play. Confidence is key. This is another major advantage of having sophisticated and experienced investors which can add value far beyond the equity they provide.
As with each deal, we learned a lot closing on this asset and we look forward to continuing to build our portfolio. All of of our current deals are fully funded but we hope to have new opportunities soon. Please reach out if you’d like to learn more about investing or partnering with us in the future.