Multi-Family Advice

Lessons Learned – Closing 388-units

By September 27, 2018 March 4th, 2019 No Comments
This week Wildhorn Capital closed on our latest acquisition, this time a 2-asset portfolio in San Antonio totaling 388-units. This brings the growth of our total portfolio in the last 12 months to 833-units; equating to a combined asset value of over $70,000,000. As the dust settles on this closing we wanted to share our biggest lessons learned in the hopes of helping others learn from our experiences (also see lessons from The Joseph and The Lila from earlier this year).
To set the stage, here are some of the key details around this deal:

We purchased these assets from an out of state family owner. Early into the process we were able to work directly with their team. This continued all the way through the due diligence and closing periods. It was nice to work directly with the Seller, and we established a great working relationship with them over the course of the deal.Both of these assets are similar vintage (1980’s) and size (198- and 190-units respectively) to our existing San Antonio assets. They are also in very close proximity. This afforded us deep familiarity in writing the deal points, outlining the business plan and forecasting rent potential once we execute our upgrades.

We raised over $10mm in equity from our investor partners and had to do so in 3 weeks to meet an aggressive closing schedule. The only way we could have done this was by applying many of the lessons we’ve established from previous equity raises. With this deal, our total equity raised has reached just north of $26mm in a 12 month time frame.
Ok, now here’s the big lessons learned:
  • Leveraging Portfolio Efficiencies This was the first portfolio deal we have completed, and it certainly gave us a competitive advantage with the Seller. We pursued a few deals earlier this year that were part of a portfolio sale and ultimately lost because the Seller went with someone buying the entire group. In this case, we knew early on that we liked both deals and would be able to pursue them as a package. At the end of the day, that gave us a big leg up over several groups that were trying to buy just a single asset. Because of the Seller’s preference to work with one group, we were able to get these deals at below market pricing and not having the highest price on either individual asset. Buying and operating these as a portfolio also allowed us to create an entity structure for our investors that provides diversification and simplicity. We created a single limited partnership where investors place their capital but receive the benefit of that capital being diversified across two assets. On our end, executing the deal as a portfolio allowed us to cut down on closing and legal expenses, creating efficiencies across the board. The best part is that each asset is still managed and operated as an individual business, giving us maximum flexibility when it comes time to look at exit options. Given all this, we absolutely will look to execute another portfolio purchase when the opportunity arises and would encourage others to explore this
  • Be Personable, But Professional We were not the only group looking to buy this deal as a portfolio. Before we were awarded the opportunity, there was a final interview with the Seller. We were one of only two groups to have this call. After we were awarded the deal, the Seller commented that they really felt comfortable with us and appreciated our approach to this call. Our approach to this interview was to be personable but to focus the discussion on our business plan, our familiarity with the assets, and our reputation as good buyers who always close. The Wildhorn Team had spent a ton of time at the assets during the underwriting process and had been tracking these deals for some time. We talked a lot about what our plan was with these deals, shared our Cap Ex assumptions, deal numbers and highlighted a few areas we knew we’d need to investigate during our due diligence process. Post-award, the Seller’s feedback was that the other group tried very hard to establish a personal connection, talking about shared personal interests, family vacations and travel destinations, but glossed over much of the details around these assets and their business plan. At the end of the day, they felt more comfortable with us because we were thorough in our explanations and kept the call focused on the business.Relationships matter, but even when working with a personally invested family owner (as opposed to a big operator with layers of employees) it’s still important to keep your interactions professional and business oriented.
  • Better Technology Drives a Better Process Starting with this acquisition, Wildhorn has rolled out a secure online investor portal. This portal houses our investor documents, statements and updates, but is also a key step in the acquisition of new deals. During the acquisition process, we share our Investment Summary and PPM documents there, and investors and can the Subscription Agreement directly online via Docusign. Compared to previous acquisitions where we didn’t have an integrated online portal, this equity raise went much smoother, and we received very positive responses from our investors. This isn’t to say there weren’t a few questions and hiccups to work through, but overall using the portal allowed us to manage investors through the process, walk them through the steps to subscribe, and then seamlessly give them a home base to receive their communication and documents for all their Wildhorn Investments. If you are an operator, we would strongly encourage you to investigate how technology like this can simplify your processes. If you are an investor, ask your operating partners about their thoughts on a portal—it makes your life easier and more secure. If you want to take a tour of ours, feel free to reach out.
  • Relationships Still (And Always Will) Carry The Day If you are a regular reader of our articles, this will be a familiar topic for you. Sorry, but we think it’s just too important not to continue mentioning, especially in the context of what we learned closing this deal. We have a long and very good relationship with the broker who was involved in this deal. In fact the last deal we closed was with them. As that deal was closing, they tipped us off that these two assets were coming to market and given our criteria they would probably be a good fit for us. We toured them before they were even on the market—and we confirmed they would fit right into our value-add strategy and we loved the locations. The problem was the whisper price was much higher than we would pay, so the idea of a pre-emptive offer wouldn’t work. Instead we let the marketing process play out. We toured the assets multiple times, tightening up our numbers and assumptions. We talked with our General Contractor handling the renovations at The Lila and learned he had recently completed work at both assets in this new portfolio. Because of this we were able have very firm numbers and communicated with the broker where we were going to land. Given our relationship, they knew we didn’t play games and could trust what we were saying; in turn we could trust they weren’t using our numbers to bid up other groups. When it came time to win the deal, the brokers were able to confidently tell the Sellers about us, our previous transactions with them and how we operated. We also had the benefit of telling the Seller directly about our mutual relationship with the GC. Given the confluence of positive relationships we had, the final scales tilted in our direction. We’ve been fortunate to add these two deals to our portfolio. Recognize the importance of relationships and understand that no matter what business you are in, you are really in the relationship business.
If it hasn’t come through yet, we’re proud of this one. This portfolio was our largest acquisition to date, and it had the shortest timeline from contract to close.We applied all the lessons learned from our previous deals to make that a reality. We look forward to applying these lessons to future acquisitions as Wildhorn Capital’s portfolio expands and we enter new markets.
Purchase or invest in a portfolio deal like this one? Want to explore our Investor Portal? Are these deal recaps useful for your business? Let me know, let’s talk.

 

Leave a Reply

The Wildhorn Capital Leadership Team offers small group training to existing or aspiring real estate investors. If you are interested in learning from our team please fill in the following information and we will get in touch with you.

Wildhorn Capital needs the contact information you provide to us to contact you about our products and services. You may unsubscribe from these communications at any time.*

Wildhorn Capital has investment opportunities for accredited AND non-accredited investors. An Accredited Investor is an individual with annual income of $200K ($300K joint income) for the last two years or with a net worth exceeding $1M per the SEC.

Wildhorn Capital needs the contact information you provide to us to contact you about our products and services. You may unsubscribe from these communications at any time.

Yes

Thanks for your interest!

Schedule a call with
Andrew Campbell

Schedule on Calendly