BACKGROUNDIn today's turbulent and uncertain economy, many individuals and institutions are finding real estate to be a particularly interesting sector. While this is scarcely a new phenomenon, participation in this market sector has been increasing significantly.
One attractive strategy is the ownership of moderate and moderate-lower income multi-family rental housing situated in primary and secondary urban centers — ownership of established properties with verifiable earnings records. Professional property management is a critical element of each facility. This strategy is based upon the continuing shortage of good housing in these income brackets and areas as well as a history of low vacancy rates.
A MULTI-FAMILY REAL ESTATE STRATEGYAn attractive strategy is direct ownership in forthcoming real estate acquisitions. This may be appealing for an individual (or perhaps an affinity group, e.g., family members or professional colleagues), seeking direct ownership in a multi-family (apartment) facility. The experience of many has been that a prudent direct multi-family property can yield more attractive operating as well as long-term returns than alternative opportunities.
Quite simply, this strategy operates as follows:
Searches are ongoing for and identifying possible real estate acquisitions that appear to be stable and attractively profitable.
Once an attractive real estate acquisition is identified, an objective financial and marketing analysis is undertaken to eliminate any potential acquisition that fails to meet its "hurdle" performance criteria. Depending upon the client's financing preferences, current criteria generally seek cap rates of not less than 8% and "cash-on-cash" returns of not less than 12%.
Following an acceptable analysis, a summary report is generated of the acquisition under consideration. If interested, a Limited Liability Company (LLC) will often be established to ultimately take title to the property. If consummated, the individual owners(s) will participate in the net income of the project in conformance with a stipulated schedule in the Operating Agreement of the LLC. This Operating Agreement will also address other issues such as exit terms to meet the goals of the particpant.
Upon submission of an Offer, a rigorous due diligence examination of the property is undertaken on behalf of the LLC including a professional appraisal and all relevant investigations leading to the anticipated execution of a Purchase and Sale Agreement, if satisfactory. All parties are kept apprised of the progress of the due diligence examination. If the due diligence examination uncovers problems or deficiencies that cannot be cured, the negotiations are terminated.
It is desired that all negotiations move expeditiously. This is almost always in the best interests of the Buyer and the Seller.
All due diligence analyses and reports are made available to the prospective owner(s) to facilitate timely decisions.
All conditions of the transaction (viz., term, interest rates, amortization, and payment schedule) are designed to meet the individual or institutional goals of the prospective owner(s).
While understandably subject to the constraints of the Seller, the Buyer's goal is to complete a transaction within 60 to 75 days of the initial commitment to proceed.
OTHER OPTIONSIn lieu of the strategy summarized above, a prospective owner may prefer a very different kind of ownership in forthcoming real estate acquisitions to meet their individual or institutional goals. §1031 tax-deferred exchanges are readily accommodated.
The Harrison Company, LLC, ("Harrison") is a limited liability company chartered in the Commonwealth of Massachusetts (March 30, 1998) "To acquire, own, operate, improve, develop, rent, and sell real estate." Harrison has enjoyed continuously profitable operations and good tenant and community relations; financial relations have been unblemished.
Harrison Company, LLC
227 Fuller Street
Brookline, Massachusetts 02446.5757 USA
Telephone: 617.232.6596 — FAX: 617.232.6674
Revised: December 6, 2004 TAF
© Copyright 2002, 2004 Harrison Company, LLC, All Rights Reserved.