Acquisition Rehab – Bonita Fountains aka Eaglewood Apartments, Orlando Florida

Bonita Fountains Finance StrategyProperty initially listed for $67,000,000 or $119,642 unit

Spent $27,500,000 acquisition $49,107 unit

• Construction/Permanent Loan $22,500,000• Equity $10,316,595• Brownsfield VCTC -$500,000• Brownsfield VCTC - $500,000• Future bldg materials sales tax -$400-500,000

Acquired @ $27,500,000 and developed @ $58,601 unit all including 44 acre tract

environmental cleanuprehabilitationinfrastructure

Value• 44 acres of land w/ entitlements for 540 units• 2,000 LF new road and infrastructure for all new units• 560 apartments built in 1987 and 2000• Created all new infrastructure for next developments• Capture sales tax on future building materials

(2) Strategy - Bank owned real estate finding the foreclosed properties

• Knowing where to look• Where does the information come from?• What is public information and what is not• Who controls the asset?• Understanding what went wrong• Determination of value*****• Financing limitations

Where to look for Bank REOs

http://bankofamerica.reo.com/search/propertysearch.aspx

https://www.citimortgage.com/Mortgage/Oreo/SearchListing.do

http://mortgage.chase.com/pages/other/co_properties_landing.jsp

Top real estate brokerage firms bid to be the listing agent to remarket bank owned properties

Some banks direct sell All bank websites have basic information and contact Other websites have general info on some bank owned assets such

as Loopnet, and broker controlled websites

What are the issues to consider on an REO?

Existing asset value is determined by trailing 3 or 12 month NOI (from a lender perspective to acquire debt and finance) less debt available to acquire because performance is below market

Many buyers are using double digit cap rates for NOI analysis due economy eroding values

Concessions on rent almost always devalue income stream

Include reserves above the line when determining value

Trend Analysis – what is it worth?

  Cap Rate Analysis

Acquisition Cap Rate  

Going In Purchase Price XXXXXXXX

Trailing 12 months Cash Flow Income – expenses and reserves

Trailing 12 months NOI Income- Expense

Cap Rate on Trailing 12 mos. Cash Flow Trailing 12 / purchase price

Cap Rate on Trailing 12 mos. NOI

Cash flow on trailing 12 / purchase price

Stabilized Valuation  

Year 3 (2011) Cash Flow -projected Cash flow at stabilization Y 3

Year 3 (2011) NOI - projected Project NOI

Sale Cap Rate used in Model Cap Rate determined by market

Year 3 (2011) proj. value on cash flow Projected Cash flow / cap rate

Year 3 (2011) proj. value on NOI Projected NOI / cap rate

Value to Project Investment Projected NOI / Total Investment

Trend Analysis – what is it worth?

  Cap Rate Analysis

Acquisition Cap Rate  

Going In Purchase Price $22,500,000

Trailing 12 months Cash Flow $779,763

Trailing 12 months NOI $919,763

Cap Rate on Trailing 12 mos. Cash Flow 3.47%

Cap Rate on Trailing 12 mos. NOI 4.09%

Stabilized Valuation  

Year 3 (2011) Cash Flow -projected $2,606,220

Year 3 (2011) NOI - projected $2,746,220

Sale Cap Rate used in Model 8.00%

Year 3 (2011) proj. value on cash flow $32,577,750

Year 3 (2011) proj. value on NOI $34,327,750

Value to Project Investment 104.6%

Conclusions to REO acquisition

• Must have access to debt• Debt underwriting more stringent than typical –

less debt available• Must have access to equity***• Economy has changed all of the rules!• If you can buy right on an REO – great

opportunity!