When it comes to reviewing multifamily investment opportunities, ultra-high-net worth individuals, serious investors, and family offices are quite astute at spotting flaws in the investor package that a sponsor or JV partner puts in front of them. While the obvious “red flag” flaws are easy to spot, like unreasonably high returns, risky debt structure, or a bad location, there are more subtle flaws that are sometimes overlooked, even by experienced investors.
In my experience as a syndicator and investor, I’ve seen these flaws on many deals. I began my career in real estate working as a commercial real estate lawyer in 2007 and later transitioned to a property manager role. After I received my MBA from MIT, I started Blue Lake Capital and became a syndicator. My company purchases Class B multifamily value-add properties in Texas, Georgia, Florida, and the Carolinas.
The flaws I see are often apparent in the investor packages, which generally contains a summary, a description of the opportunity, an overview of the market, a business plan, and an overview of the financials, or a proforma. While there are several to watch for, there are three flaws in particular that are of great importance, so I’ll discuss each one in detail.
Flaw #1: Business Plan Assumptions
One of the items usually found in many investor packages are beautiful photos of the property, often showing what the project will look like when fully renovated. Part of the business plan talks about value-add renovations of the units, but what isn’t always apparent is when the renovations will begin and how long they’ll take.