What are the Day-to-Day Tasks of Multifamily Operators?

Private equity firms acquire a handful of assets on a yearly basis. The question that rises is, “what are operators doing in the meantime?” Syndicating is a beautiful art, there are a lot of revolving pieces in communication with one another to acquire an asset. In order for a real estate private equity firm to function, there are three primary pieces that must be at play. These three pillars are finding great deals, sourcing debt and equity, and asset management. In addition to those, there are a multitude of smaller pieces at play, however those will not be talked about in this post. As a note, those “smaller” pieces were talked about in this post.

Securing  a Great Deal  

Anyone can look on the MLS (multiple listing service) and look for real estate to purchase. The truth is, most deals that make it to the MLS aren’t sought after by private capital. Brokers have a pipeline of investment firms that they present the deal to before hitting the market. These are referred to as “off market” deals. After these firms decide to pass on the deal, brokers take the deal to the market. This isn’t to say that every deal on the MLS has been passed on by institutional capital. Brokers can take a deal to the market to get the asset sold above asking price as the acquisition is more competitive. Within the world of commercial real estate, there is a lot of competition for the many deals both on and off market. Sponsors are looking at deals everyday and filtering through to find that one deal that meets that investment group’s criteria. This means looking at 100s of deals a day, underwriting 10-20 that interest you, making offers on 10, and bidding to close one. This process is extremely time intensive and requires precision. After evaluating thousands of deals, firms usually close on 3-10 assets. 

Sourcing Debt and Equity

A lot of people say that if you find a great deal, the money will come. From personal experience, this isn’t true unless you’ve already established a stellar reputation in the industry. Starting off, you have no reputation and you’re learning the work for your team and mentors. 

Sourcing debt and equity is a task that is constantly performed simultaneously when finding a great deal. Sponsors are constantly having meetings with investors to discuss the strategy that the firm takes and if they will be a good fit for one another. One firm might have a strategy that focuses on equity multiples with shorter business plans, whereas another may take a long term approach and plan for a longer time befor exiting. Keep in mind that meeting with investors is strategic. You want to be able to help the investor make the right decision based on their financial needs. If the goals of your firm align with that of the investor, you want to have them fill out an investor forum with basic information and have them on queue for the next deal. During this process, you’re getting a capital count of soft commits. Truth be told, out of 100 investors that give you a soft commit, maybe 10-20% will convert to investors for a set project. 

The other side of the coin is debt. Leverage is the key to real estate and the tool to wealth. Sponsors are often meeting with lenders to strengthen their reputation and connection. Your ability to close is one of the largest determining factors of your reputation in the industry. Being able to have a rolodex of lenders for specifics deals is key to sourcing efficient debt terms to match a deal, especially in a fluid market like today. 

Asset Management 

Asset Management often gets brushed over and not shown enough emphasis. Investors are investing their capital in the sponsor before anything. The largest risk they endure is choosing the right sponsor. The way a firm takes care of an asset is directly related to the economic performance of that asset. Managing an asset is more than just checking off your KPI checklist. The most important task is the streamline of communication with the property manager. Thus, choosing the right property management company is vital to the success of a business plan as they are the one’s working to implement the plan on a daily basis with boots on the ground. Vetting the right PM company is step one. In sync with the PM company is communication with contractors and GC’s as they are the boots making the value add happen. Hiring and training property managers, contractors, GC’s, leasing agents, attorneys, and accountants is vital for a full circle execution of a business plan. These moving pieces are in sync and maintaining communication with everyone is vital. This side of asset management is only internal. There are external functions as well that are related to the investors. Providing monthly updates on the progression of the business plan is essential to ensuring a long term relationship with equity. Hosting quarterly webinars, reporting, and having an open line for questions are all external factors to asset management. 

Conclusion

Acquiring large institutional assets is sexy but there’s tons of work behind it. There’s extensive time put into choosing the real deal and aligning the moving parts to close is a chaotic task. There must be systems in place to organize the acquisition and disposition process to ensure swift and efficient business. While social media portrays only the sexy outcome of acquisitions and dispositions, there are precise and time intensive tasks that drive firms to success.

If you have any questions regarding the terms and concepts in this post or previous ones, don’t hesitate to reach out to either me (tedi.nati@jpacq.com) or someone on our team so we can help explain what is causing the confusion. If you’re interested in investing with us at JP Acquisitions, you can contact us via email (contact@jpacq.com), LinkedIn, Instagram, or our investor portal to set up a meeting.

As always, I hope you enjoyed reading this post as much as I have writing it. Best of luck!