Commercial Real Estate Pro Network

BIGGEST RISK with Reed Goossens - CREPN Radio

Darrin: [00:00:08] If you could identify what you see has the BIGGEST RISK you face as a department's syndicator? [00:00:15][7.4]

Reed: [00:00:19] From from an insurance point of view? [00:00:20][1.3]

Darrin: [00:00:21] No if it does not have to be an interesting point of view and I guess I want to make that very clear. If you've got it you can think of it in a way of just. I mean if you if you tie into it and that's fine but I'm really not looking at war conditions. [00:00:32][11.2]

Reed: [00:00:33] I can give you one on the insurance. So goes back to building construction best practices and in the 80s, assets were built without fire sprinklers. So you'll get to know that things that are built in the 90s and particularly in the early 2000s. Fire sprinklers are everywhere but it was required by code is code changed over the years. But if you go to 1980s asset or earlier they will probably not have fire sprinklers which means your insurance for fire is going to go up and your premiums going to go up. So, having the new crop of construction we talked about the nine foot ceilings, typically with nine foot ceilings, you'll have fire sprinkler heads. In my experience, things that are built in the mid 90s and sooner or later we'll have fire sprinklers and that will help you with insurance hail damage roof insurance all that sort of stuff. You're really going to be on top of when roofs need to be replaced. Depending when you're buying, like in Texas, we have a lot of hail storms. So a lot of companies insurance companies will replace roofs when the hail storm comes through. And we need to really be on top of that, when we look at the due diligence because a roof can cost you three or four hundred thousand bucks. And if you haven't You haven't budgeted for what's taken out of the exterior budget you're leasing office not look as good. So, that's the sort of insurance risk it'll look at as a syndicator. In terms of the BIGGEST RISK, there are so many risks. When you're when you're syndicator. It is obviously finding the right deal. If we stop any funding or deal underwriting it correctly what assumptions have you put into the underwriting to make sure that you protect your investors principle? Because you will we invest in real estate to make money. We don't invest in real estate to lose money. I think in terms of where we are in the market cycle we are looking at new types of assets from a risk point of view and it ties into insurance. We look at new build assets because there's less skeletons in the closet. They're individually metered, right. 1990s or early a built to thousands of individual meters on water on electric. They'll have fire sprinklers. They'll have individual heaters. They'll have individual high spec systems so there's less likely to have issues as you move down the track where ownership. There Is left heavy lifting we have to do. So you can go and buy an asset that was built 2000's at the same cap rate as you can buy an asset is built in the 1990s but there's going to 1980s I should say but that's going to there's gonna be a lot more potential risk items from an insurance point of view and a construction point of view that could come and bite you in the ass later on. So we look at that. We weigh that up and say I want to spend less money on the front end. I still get the same cap rate coming out of the gate. Why would it want would I go buy 1990s asset. The second thing is where are you buying. Core implies value add locations are extremely important. I would not be buying in the Treasury market right now. I'm buying where the population is growing. I'm buying with his multiple income employers. So there's a, people all always have a job. I'm looking I'm really I'm looking for a value add properties proposition. I don't want to buy something that is being touched by someone else because that's not a true value add. There's all these things out in the market right now. You know value add the whole exteriors being touched and you know 30 percent of the units are being touched and interiors and the brokers will sell it to us. I would just come and finish those off. Well one of one things we've seen as I explained before. You don't ever do 100 percent of the units you've got to come in and do 50 percent maybe a silver package you need to do maybe some that are a goal but you need to tend to send a gold and you leave the rest as classic because you want to offer that smorgasbord to people in these markets that you know. Remember we're in the game of affordable housing. We can't you know you can't come in and expect to buy a 1980s asset and increase the rent to two and a half thousand bucks a month like you get in Portland in Los Angeles. You know we're not in those markets. And if you are in those markets you're buying syndicating I bet you my bottom dollar it's not cash flowing because you're buying it at a cap rate of a 2 and 3 percent. So you've got to you've got to look at this somebody from risks from insurance to the top the bill to how where you're buying and where the path of progress is if you are buying in those secondary markets and how is that going to help you be future proof your investment just to make sure that the value is there and that you're going to your investors capital is protected and you've got to make money in the long term. So a number of things there for your listeners. [00:00:33][0.0]

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