How We Identify and Select Profitable Properties
We seek commercial properties in regional markets with high population growth, a large number of major employers, and a stable market. To be considered, the fundamental traits of a profitable deal must include the following:
Identifying multiple target regions allows us to select the markets with the best value for investors based on the above criteria. We launch our search for a new multifamily venture by employing these preferred standards.
Build our acquisition team: After determining our target markets, we assemble a team to provide the necessary skillsets for a successful acquisition. There is often overlap, allowing us to work with the same team members on multiple purchases. Although, we may choose to change partners based on various circumstances.
An acquisition team has two components: The group that acquires and manages the property and the support team of professionals who are often regional representatives.
The acquisition support team includes brokers specializing in commercial real estate, commercial mortgage lending, and insurance.
The acquisition team includes a syndication attorney, acquisition specialist, funding specialist, sponsor or general manager, and private investors.
- A syndication attorney is part of the property negotiations and ensures we satisfy all legal requirements.
- An acquisition specialist assists with the vetting process, verifies the offer's information, and completes the on-site walk-through.
- A funding specialist works with the mortgage broker to secure funding and serves as the loan guarantor.
- The sponsor or general manager coordinates the team's efforts and addresses the day-to-day decision-making necessary to secure, manage, and liquidate the property. The sponsor serves as the general partner in the LLC for the duration of ownership.
- Private investors, like yourself, contribute to the equity portion of ownership and become limited partners in the LLC. Investors participate in the profits without requiring any time or expertise in the property's real estate transactions or day-to-day operations.
Once we establish the specific criteria for identifying appropriate properties, the search begins for a profitable multifamily unit to purchase.
Discovery and sourcing: The initial vetting process begins by partnering with commercial real estate brokers in the target markets. They identify potential on and off-market properties within the region and send them to us for consideration.
Suitability testing: After receiving property information, we analyze the potential deals based on our criteria to narrow the list to a few properties that will move to the next step.
Deal analysis for suitability involves running various performance scenarios to determine how the deal holds up to potential market stresses. We utilize proprietary software to determine which, if any, is viable based on conservative underwriting practices. The evaluation also considers current rent rates in relation to the regional market and the potential for value-add projects to increase revenues and drive appreciation.
Property tour: Deals that make the final cut warrant a tour of the property. Seeing the asset firsthand provides more feedback on the current state of the property and its upside potential. Identifying potential upgrades that can increase rents or add additional income streams create more profit potential for investors. Upgrades could include unit renovations, adding popular amenities, or capital improvements
If the tour results in a green light, we submit a Letter of Intent (LOI). The LOI is a non-binding agreement expressing our interest in the property and allows for further due diligence and the beginning of the negotiation process.
Property negotiations: If the owner accepts the Letter of Intent, our attorney begins negotiating the details of the purchase agreement. Once an agreement is reached, the attorney draws up a contract that specifies the purchase and earnest money deposit requirements.
In commercial real estate, earnest money comes in soft and hard stages. We must pay the soft (refundable) deposit within 2 to 3 weeks. This timeframe gives us additional time for due diligence to ensure the property is as presented. The hard deposit (non-refundable) becomes due at the end of the last due diligence period. The contract also specifies a closing date, which generally allows for one or two extensions.
Raising capital and securing financing: The capital raising period begins after the contract signing. It typically takes 60 days to close the loan.
When the final due diligence report comes back clean, i.e., no issues were uncovered, it is time to arrange financing and close the deal. There are two components to financing commercial real estate: the equity and debt portion.
- The equity component relies on investors like you to join forces through Sunage Equity Capital. It serves as the down payment on the loan. The more equity raised, the lower the borrowing costs are on the property. While there are benefits to leveraged debt, additional equity capital keeps borrowing costs, and risk, down.
- The debt component: Banks and other financial lenders provide the debt portion of the financing. Mortgage brokers and the funding specialist work out the financing arrangements.
Closing the deal. Closing the contract transfers ownership to the syndication. In order the close, we must raise a certain amount of capital based on the sales price. The key principals or partners in the deal secure financing, sign as guarantors for the loan, and participate in providing equity capital with the remaining passive investors.
Property management: The syndication establishes an LLC to hold the property. Investors serve as limited members, providing capital for the deal. Limited partners are not responsible for the day-to-day operations, making it truly a source of passive income.
The managing partner is the active member of the LLC who deals with the day-to-day management decisions. A property management team runs the business during the period of ownership.
The exit: Real estate syndications operate for a set period with an anticipated exit of two to seven years. Any changes in economic conditions and property performance can influence how and when the LLC sells the property and returns capital to investors.
In most cases, investors begin receiving quarterly payments within the first year of ownership. The timing depends on the value-add aspect of the deal.
