How to negotiate better loan terms and manage lender relationships? We will also cover top lessons learned at the latest conference and evens, and what is the current state of the market?
Lessons Learned
- Some of the Dollar Stores that closed are now selling in bankruptcy for a huge discount.
- There are so many ways you can partner up with people, you can do a JV (joint venture) with owners who have a lot of dark real estate (such as Dollar stores that are closing). Dark retail is a retail store that still has a lease but they have decided to close doors, they are still responsible for rent, but having a dark retail in your center isn’t good for your other tenants, so you would want to have that property filled again. What can you convert that to?
- You can partner up with cities, ask the city what do they need, offer to buy the land at $1/sf, offer to pay starting on year 3-10 when the property is ready or fully stabilized, get funds from them or breaks in fees.
- If you need a capital partner, there are capital market intermediaries that can help you find family offices or a construction loan, I spoke with a couple of people that did that a while ago and as far as I recall, their fees are around 2-2.5%.
- When you raise a fund, the real estate fund management fee is 1.5-2% of the committed capital.
- Don’t give special terms such as MFN unless an investor is committing a minimum of 25% of the deal. A “Most Favored Nation” clause gives a party the legal right to terms and benefits under the contract that are as good as or more favorable than the terms and benefits received by anyone else who enters into a similar contract with the other party.
- After webinar let them know you have the next week open for any questions they may have, this builds trust and helps them move forward.
Market Updates
Survive until ’25 has turned into Persist Until ’26 according to our syndication attorney, Mauricio Rauld. He recently attended the National Multi-Housing Council (NMHC) conference and the sentiment was that distress is coming.
One of the reasons is because lenders continue to extend loans rather than foreclose on them, the old 'Extend and Pretend' tactic. According to him, in 95% of the cases, lenders were granting one-year extensions to borrowers rather than foreclosing. Lenders just didn’t want the properties as they got them in 2008. Although there were certain conditions to those extensions (extension fees, rate caps and recapitalizing past due amounts), these extensions are now scheduled to expire in 2025. Remember, most bridge loans were initially extended in 2021 and 2022. These were 3-year loans that originally were scheduled to come due last year and this year.
Lenders are generally unwilling to foreclose unless borrowers completely stop making payments. This is actually a sentiment that George Ross shared on his monthly mastermind with Victor Menasce. He said that if you are in trouble, let them know in advance that you need to work something out with them, and if the lender plays hardball, just stop making the payments, the majority of them won’t want to foreclose on you.
What lenders prefer is to switch out failing sponsors / operators and giving favorable terms to the new managers. However, many are still unable to sustain current high interest rates, or bring on additional cash to meet the lender requirements.
Self Storage
If buying a facility that is half built, negotiate $15k refund per month that they don’t deliver the rest.
REIT ROI and occupancy is down across the board, 80.9% is the occupancy in general.
Extra space is 95% occupied, they charge 4.5 to 5% per month but we don’t get the tenant insurance split, they are hard to onboard, but have white glove service
Public Storage charges 4% management fee but they charge a fee for the district managers, and we get 25% of the tenant insurance.
Be the absolute best at the basics: open the door, put items in, close the door. We must have a clean facility, make sure that the gate works, and answer the phone.
Bourbon storage is 100% occupied and they have four year contracts, it can only be stored in Kentucky.
If you are not fast, you won’t buy anything this year.
How to Talk to a Sales Broker:
When you call a sales broker, here’s what you say:
I’m Steff Boldrini, I have 3 storage facilities in SC, FL and CA, and this property fits our buy box. (note: if you don’t have any storage facilities, let them know how many other real estate you may have.)
Why are they selling?
Go over other questions you may have, after you review the OM.
Tell the you will have feedback within 2-3 business days and get back to them.
When you call an owner:
You must have a general idea of the value of the property before calling them.
Give the same introduction as above.
Offer to sign an NDA when asking for financials, tell them you will have feedback within 2-3 days and get back to them.
Go visit them and take them for lunch, there’s nothing like a face to face meeting.
When sending your LOI, you must include:
- The price
- How much deposit you will give for due diligence (at least 1%, but 2% is recommended)
- The due diligence period: 90 days for due diligence + 30 days for closing (now it is 45 and 45), larger deals may be tighter
- Financing: what kind of financing
- Buyer background: I own X number of properties, and have raised Y millions of dollars
- Exclusivity: where the seller agrees not to engage with other buys. The LOI is non binding, but it’s good to have the exclusivity.
Always submit an LOI, even if you think the sales price is high. Brokers typically list the price of the property at 15-20% higher than they expect to get. After submitting the LOI, follow up within 24-48 hours. If you don’t win, follow up every 2 weeks to check on the progress, and ask the broker about their next deal.
Management:
Create steps and systems for everything. Find the 3 best people that do that thing and ask to watch them. Each process must have a time goal. The team has to follow the playbook. You must put a scoreboard and checks and balances on systems. Tell the employees to do it for 6 months and then come tell me how it can be improved.
Look at “Objective and Key Results” strategy.
When using ChatGPT, you must type 450 words and include, who you are, what is the context and what result are you looking for
Loans and Lenders:
You must pick up 5-6 new lenders a year.
Meet all of your lenders yearly, give them a report with your PFS (personal financial statement), show all property owned, how they have performed, share your mistakes and lessons learned, share the vision for the company, be proactive, present the business plan, how have you operated the assets.
After a loan is done, the lenders get a 2 week update, then it becomes quarterly. Send pictures, and show how are you doing vs pro forma.
Negotiate on loan unforeseen costs, stick with your needs even if you may lose that lender.
Negotiate that if you hit x percentage value increase, the lender gives the loan at x interest rate.
Agency debt is non recourse, and credit unions are great.
Don’t give any personal guarantees, the bigger you go, the less common it is for them to ask for a personal guarantee, lots of co-GP family offices can help and will show their balance sheet. You will need to have some guarantor for carve outs only.
We must negotiate debt to the ground, LTC is currently at 50%, don’t do variable rate.
We must read all pages of the loan docs and comment, edit, someone I know has made as many as 500 comments. You must have other banks lined up first they say no. Also, put a homestead exemption on all of your loan documents so they can’t take your home in case things go south, and make sure that they’re not removing any of your constitutional rights.
Lastly but certainly not least: The fastest way to change your life is to change the words you use.