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Launching Real Estate Syndications – Property Management

By: Tilden Moschetti, Esq.

Ensuring good property management is critical to syndicating. Your investors are counting on the property being managed in such a way that their asset doesn’t start deteriorating. Under the guise of property management, we have four different kinds of analyses that we need to know as syndicators and asset managers in order to make sure that property management is working as effectively as possible. If you’re doing the property management itself, this is a nice overlay of the kinds of things that you should be thinking about to make sure that maximum value is being given to your investors. If you’re not doing it, you still need to have this framework. It acts as a discussion between you and your property manager in order to keep those values as high as possible, again, for your investors.

The Analyses

There are four different analyses that take place, and then a fifth one that controls and prioritizes them all. 

The first one is the property analysis itself. The property needs to be analyzed in an objective framework in order to understand where it is in the market. Everything should be put together and consolidated into one solid thing, into one notebook or one box or one file that has every detail so that you can have that property managed in the most effective way. This includes floor plans, stalking plans, and all of the other documents that accompany this, including plumbing system, HVAC systems, etc. Include warranties, improvements, the plan for the roof, etc. This helps you understand how the property actually sits. 

The second piece of a necessary property management is the financial analysis. Here we’re talking about rent roll, budgets, and as much historical detail as possible, from when you bought the property up to now. You can see trends over time so you know what is actually taking place in the bigger picture and make plans for the future. 

The third category is related to financial, and it’s lease analysis. As an asset manager, you should read every single lease and be an expert on it. Not only that, but there should be lease abstracts that are done on every lease, looking for the big ticket items to understand what is going on with every single lease. When somebody has a question about what’s in their lease, all you have to do is pull out the lease abstract and you can point to where it is in the lease. 

The fourth category is market analysis. A market analysis has three different levels to go through: the building level is basically a SWOT analysis. There’s nothing fancy about it. You want to know where the building sits and what its strengths are. Look for things like where this particular neighborhood is in the market lifecycle. Is it really booming right now? Is there gentrification happening? Is it slipping back? What are the long term demographics of this neighborhood? Are more people trying to come in? Is this a hot neighborhood? Is the income levels nice? You need to understand all of those things. On a bigger level, you want to know what your region is, including the demographics, job growth, construction, vacancy, etc. 

So now you’ve got these four things. You’ve got a market analysis, lease analysis, financial analysis, and a property analysis. The last step is the issue analysis.

The first four feed into this because as you’re doing those four, you’re going to be starting to identify what the different issues are that you have with the building, things that you want to improve upon, etc. You want to develop action plans. In order to do that, start by listing the issue, the cost, the reason why you want to address it at all, and what the source of funds would be.

Once you have all of those documented, you can start making good decisions on priority. That way, you’re doing things in an order that makes sense. For each one of these issues, come up with two or three different ways to solve the problem. For instance, if it’s a new roof you need, perhaps you’ll just coat it, or maybe you’ll rip off the roof altogether and replace it with one with more insulation, and see how that works. Examine your different costs, and analyze what’s going to add the most value in order to make this property really sing. 

Property management works best under that framework of property analysis, financial market analysis, lease analysis, and issue analysis.

 

Are you ready to get started with your own syndication and need a private placement memorandum? Moschetti Law Group is a real estate syndication law firm and we’d be happy to meet with you to put together your Regulation D syndication documents and guide you through the process of launching your own offering.

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