Winner of the San Diego Business Journal Top Real Estate Deals of 2014
“My team represented the owner and closed the deal from multiple offers, at the full asking price of $4.7 million. That selling point was one of the highest recorded price-per-unit sales in Golden Hill.”
I was honored and humbled when I recently won the prestigious San Diego Business Journals Deal Maker of the Year Award for best Multi-Family with the sale of El Dorado Manor in Golden Hill and also won for the top Retail Deal of the Year for the sale of the San Ysidro Swap Meet.
I wanted to take few moments to share with you the details of the apartment transaction in hopes that it will provide you with some ideas for transactions you may be involved in.The deal presented was the successful sale of a 22 unit multi-family property located just east of downtown San Diego in the Golden Hill neighborhood. My team represented the owner and closed the deal from multiple offers, at the full asking price of $4.7 million. That selling point was one of the highest recorded price-per-unit sales in Golden Hill.
This story began in 2005 when I originally teamed up with the Seller for a project to put a subdivision tract map on the property.The Seller’s original plan was to either develop the property himself or sell it as a package to a condo conversion specialist. That plan was dealt a challenge when the City of San Diego was served with a lawsuit by a private group whose aim was to stop Condo Conversion projects.
Front shot of the 22 unit golden hill apartment building for sale
With over 180 projects across the city paralyzed by pending litigation, I swiftly assembled the team necessary to start a non-profit foundation providing legal leadership to all the affected property owners.The Foundation’s actions soon gathered many of the Owners together and successfully removed them from the lawsuit.However, the larger issue was a lack of defined and realistic civic regulation covering this type of real estate transaction.
logo that was created as part of the marketing campaign
I employed the resources of the foundation to continue its mission beyond this first success. The involvement of all parties – City, Owners, Realtors, and Citizens – was the key to the creation of new condominium conversion regulations for the City of San Diego.My continued involvement in the lawsuit conversations and its successful resolution meant that condominium conversion would continue to be one of many sources of affordable home ownership for San Diegans.
Unfortunately, the delays encountered in addressing the lawsuit prevented the owner of the Golden Hill property from selling at the most opportune time, at the peak of the market for this property type.Not to be dissuaded, I continued to meet regularly over the years with the Owner, analyzing market trends and data. Incorporated into this strategy was attention to the existing tentative condominium map so that it did not lose value through expiration.
In 2012 and 2013 the meetings included a new, thorough financial analysis. The Owner and I focused on three viable scenarios for the property:
Owner to proceed with the Condominium Conversion himself
Owner and Agent (Myself) to enter into a joint venture to complete the Condominium Conversion
Owner to sell the property as it existed (multi-family apartments).
Additionally, my research addressed these issues:
Tax basis and tax consequences for the Owner
The potential tax liabilities of the Owner doing the Conversion directly
The value of the property in a 1031 exchange ascondominiums or as apartments
After 10 + years of ownership, trading out this property in the Owner’s portfolio would require a very attractive replacement and the confidence that I would be able to locate it.Our carefully considered conclusion was to list the property as an apartment building with the still-viable tentative condominium map included in the transaction.
With the Owner’s blessing, I selected an ambitious price point, which was the highest per unit price of any listing in Golden Hill.This created a fresh challenge – overcoming resistance to the number by clearly illustrating the supporting values.
Through my research of current and historic rents in the desirable neighborhood, I revealed support for aggressive pricing, indicating viable prospects for the property.A detailed list and photographs of comparable buildings in the area was compiled to show buyers what was being offered to apartment seekers at that price point.Additionally, I invested in large-scale, photo-realistic renderings of the property, illustrating its potential for renovation as a condominium project able to compete with pricier options in nearby Downtown San Diego. Packaged into a video format, the information was easily communicated to potential Buyers and their Realtors. This action enlarged the pool of potential buyers, with more agents and clients able to understand in visual terms the scope of possibilities and value being presented.
a rendering that was made for the marketing of the apartment building
The historic high price point per unit was supported and accepted, evidenced by the reception of multiple offers on the property.My persistence throughout a 10-year relationship and innovation created value and resulted in a successful transaction at full asking price for the Seller. My understanding of all facets of the transaction was invaluable in assisting the Buyer’s agent in compilation of the multitude of documents into a comprehensible format for the Buyer.
A final level of complexity had to be negotiated. The transaction needed to be completed within a specific one-week window of opportunity.The ability to do this in coordination with the Buyer’s Broker allowed the Buyer to fulfill the requirements of their 1031 exchange at the same time the Seller did the same for their 1031 transaction. Additionally the sale was carefully timed so that the Seller avoided a significant pre-payment penalty.
For those of you who haven’t been following the JOBS Act, it is a bill that will make it easier for startups and small businesses to raise funds, especially through online crowdfunding, is the practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the Internet.
The JOBS act was designed to help small businesses by:
1. Removing general solicitation and advertising restrictions for certain private offerings
Rule 506 – If all purchasers are accredited investors
Rule 144A – If issuer reasonably believed all purchasers are qualified institutional buyers
2. Creating a new $1M crowdfunding exemption, allowing non-accredited investors to participate in the funding rounds
Up to $1M of securities in a 12-month period
Investor’s net worth <$100k they can purchase greater of $2k or 5% of annual income or net worth
Investor’s net worth $100k+ they can purchase 10% of annual income or net worth up to $100k
The SEC will have a 270 days to implement additional regulations from signing of the bill.
If you are a real estate investor who may be looking to raise private capital through this vehicle you may want to start planning in the meantime.
Planning is the foundation to your success, Execution is the material that creates the business. Execution without planning is like wanting to drive to Fargo without a map. You may end up getting there but a little planning could have saved you a lot of time.
Check out my previous blog post where I lay out business planning and goal setting:
Get all the documents in place. Including your business plan, incorporation documents , financial analysis & forecasts and a full executive team bio.
Do market research. Get all the facts in place in order to have a strong argument as to why people should fund your project.
Start putting together a list of contacts and potential investors.
The concept of crowd funding involves work from the user seeking funds as they need to leverage their networks and ask their networks to lend a hand. We found that the initial 30-40% of activity actually comes from the users’ network.
Make a video
Start to craft your pitch in the best possible way. If someone asks what you do can you explain it in 30 seconds or less? Do you know what your most common questions are and the answers to those questions?
Start building your social network presence. Remember crowd sourcing is based on smaller amounts of money from multiple people. Start building your network and credibility
Time will tell exactly how much impact the JOBS Act will have on the job market and raising money for Real Estate
Some reasons it may not make sense:
IF the SEC:
Makes it to costly to set up
Makes it to complicated to create
Has to be sold through securities brokers
It may be to cumbersome to have a lot of little investors on deals.
More red tape and reporting requirements
I am not sure yet whether this is a good thing or not. It really depends on the SEC final terms which I will report on when the grace period is over.
For the most updated information & news on real estate & Gabhart Investments go to our Facebook & twitter pages
The HARP2 program, combined with the $25B bank settlement (providing $20B in loan modifications), will save some underwater mortgages from foreclosure and help long-term market stabilization. However, part of the bank settlement requires banks to adopt standardized (and hopefully more efficient) servicing and foreclosure processing measures. I think better processing, combined with the sheer volume of underwater mortgages is going to keep the short sale floodgates open for quite some time.
According to researchers at CoreLogic, a leading analytics firm, 11.1 million or 22.8 percent of all residential properties in the United States were worth less than the amount their homeowners owed on the mortgages used to purchase them.
The federal government originally rolled out the HARP program in 2009 to help homeowners who were underwater or near underwater. However, the program was recently broadened to reach even more borrowers. Originally, HARP applied to 895,000 underwater borrowers; and now HARP II is expected to help up to double that amount. According to HUD, about 400,000 homeowners have taken advantage of the program since it launched in April 2012…that’s less than 4% of underwater mortgages.
HARP II allows underwater homeowners who are continuing to make payments to refinance their loan. The new program offers a number of advantages over the original HARP loans. First off, there is no loan-to-value or combined loan-to-value restriction on fixed-rate loans with terms of 30 years and under. In other words, it doesn’t matter how upside-down borrowers are on their mortgages. Previously, there was a cap that restricted borrowers who owed more than 125 percent of their home’s current worth from accessing the program. In addition, an appraisal may be waived if a value for the home can be automatically generated, and the borrower only needs to have a 620 FICO score.
There are three main components to qualifying for a HARP II refinance loan. The first requirement is that the loan must be owned by either Fannie Mae or Freddie Mac. Second, the loan must have been sold to Fannie or Freddie before June 1, 2009. Third, a HARP II refinance must benefit borrowers in at least one of four ways:
Reduce the loan’s monthly principal and interest payment.
Reduce the loan’s interest rate.
Reduce the loan’s amortization term.
Transition the loan to a more stable type of loan. (i.e. interest-only to fully-amortizing, adjustable-rate to fixed-rate, 30-year to 15-year).
For the most updated information & news on real estate & Gabhart Investments go to our Facebook & twitter pages