We’re halfway through 2021 and in this month’s Harbor Drive Investor, we thought we’d share some of the numbers with you so far this year in terms of what we’ve been working on in the way of deal sourcing. We are highly active in the field and we’re vetting many investment opportunities every day. This current environment is challenging, and we must stick to our investment thesis so not to jeopardize the investor returns. Below is a mid-year recap on what we’ve been working on.
But First!! Be sure to check out one of Rob’s recent podcast appearances on Brian Briscoe’s show, Diary of an Apartment Investor. Give it a listen here, or click the image below to check it out!
and now for the numbers…
2021 MID-YEAR DEAL SOURCING BY THE NUMBERS:
Deals Underwritten: 148 deals underwritten
Offers (LOI’s) Submitted: 19 offers submitted
B&F Rounds of Bidding: 12 times
Deals In Contract: 0
Believe me, we’re just as frustrated as our investors are. But we cannot jeopardize our business thesis. Some of the reasons for losing deals include:
- Significant ‘hard’ earnest money on day one of the purchase contract committed by the competition
- Overvalued asset pricing (beyond our strike price) in competitive bidding situations
- Not deviating from some of the most important assumptions in our underwriting (i.e. YoY rent growth assumptions, exit CAP rate assumptions, etc.) while other investors are pushing the gas pedal harder than we are willing to do
This 124 unit deal was built in 1984 and is located in a tertiary market we’ve been tracking for quite a while (even pre-COVID). This was a deal that had high expenses and several management issues (the value-add). With a great physical condition, in a growing market, we were pretty eager to present this opportunity to investors. In the late stages of negotiations, things were looking like we would be awarded the contract. However, we had inquired multiple times to review the financial statements on a cash accounting basis (not accrual accounting basis as had been presented to us until that point). In the late innings, we were presented with the cash accounting books and discovered significant delinquency loss expense. After discussing the issue with the seller, we could not compromise and we decided to pass on the opportunity. We will not put our investors at risk of decreased cash-flows and other potential tenant profile issues.
Despite the challenges in today’s marketplace, we believe there are opportunities in any phase of a real estate cycle. The differences between today’s market and past markets is that today (more than any other phase in the cycle) we must be more certain than ever to seek healthy debt coverage ratios and cash-flow. Appreciation and speculative bidding is rampant out there today. You make money on a real estate deal when you buy right. The last thing we want to do in today’s market is put ourselves into a vulnerable position later because we were betting on CAP rate compression and other market forces appreciating the deal that are outside of our control.
Rest assured that we are working diligently everyday on finding our next opportunity and we’re looking forward to sharing the next deal with you in the very near future.
In the meantime,
Happy Investing!
