3NDeveloper

Real Estate developer who specializes in retail ground-up / value-add.

Average unlevered IRR (no debt) of ~40%.

Just sharing my thoughts and experiences.

[3NDeveloper @3NDeveloper]

@wendywmusic @Industrializer Often times - the people who need advice the most are the least likely to listen.

[3NDeveloper @3NDeveloper]

This is brilliance on display.

[Zach Molzer @molzer]

We created the worlds first bus bus stop for ~$27,000

Our first advertisement deal starts in 2 weeks. $4,000/month.

Unsure I will be able to do a real estate deal that delivers this type of return to both the community, the building, & in general.

You can just do things.

[3NDeveloper @3NDeveloper]

@skylarromines @realEstateTrent I signed an NDA and can't disclose that information 😝

[3NDeveloper @3NDeveloper]

@Industrializer Depending on the CapEx required, you need to 3x the NOI for it to make sense at a 3% cap.

Him being flabbergasted that a 60% lift wasn’t enough highlights the inexperience.

Pathetic.

[3NDeveloper @3NDeveloper]

I do not understand the controversy around this.

The other way of looking at it is consumption vs. investment.

Residential is a product that is 'consumed', lived in, and enjoyed. Yes, some consumable products can grow substantially in value over time (e.g. vintage cars, certain types of purses, etc.), but the majority are not wealth creators.

Owning a home has substantial qualitative/psychological value, which can't be benchmarked against IRRs. Also, borrowing at 3%-4% (not now) with a 30-year amortization makes it an interesting play.

With that said - most people are better off simply renting, and investing the downpayment (they would have put into the house) into the S&P 500.

Certain homes in Beverly Hills can be rented at +- 1.5%-2% of the home value. This barely covers the homeowners property taxes + insurance (at current FMV). This is an extreme example, but illustrates that rentals can, and often are, better for most long-term.

[3NDeveloper @3NDeveloper]

@realEstateTrent Will be back more consistently soon with some fun stories 🥳

[3NDeveloper @3NDeveloper]

@realEstateTrent Submit an LOI regardless, and tell them to call you if the owner changes their mind.

[3NDeveloper @3NDeveloper]

Negotiation strategy is a fun topic.

When leverage is arms-length, and interest is mutual, the vast majority of negotiations follow a very similar pattern:

- Initial LOI pushes for a wide array of unnecessary chips, which can be traded away later
- Follow a 'tit-for-tat' approach, in which each side wears out the other on what they want
- Eventually, an 'equilibrium' is found, and if that middle-point is within a tolerance zone for both sides, then a deal will effectuate

The alternative approach is a clean cut initial offer, which has extremely limited tolerance for movement.

Both tactics are effective, but the former is more common in lease negotiations, and the latter is more common in sales transactions.

Where negotiations can become very interesting is when leverage is lopsided.

This is where you hear the most entertaining stories of how a particular strategy was pulled off.

The most common?

Negotiating a price the Seller desperately wants, dragging out the LOI/PSA process, dragging out the escrow process, then slamming the Seller with a massive price reduction at the last second.

If a Seller is in financial distress and has limited/zero alternative options, they may be forced to accept. This happens more than you may think.

My favorite one?

This only works under very niche circumstances:

- Leverage is entirely sided towards one party
- The counterparty is highly logical, and driven by the numbers, and will agree to a lesser deal than they want if they still benefit somehow
- The counterparty has to transact with you, and no one else (e.g. Landlord-Tenant relationship, in which the lease is terminating on a high performing store with no extension options left, and no immediate relocation options available)

I've found that sometimes, when all these stars align, it's best for your counterparty to simply think you're crazy.

Like actually batshit insane.

I had a blend & extend deal which followed the parameters above.

I penciled the pro-forma rent at $180k-$200k/year.

Decided to interview a few brokers, and get input on valuations:

- Broker #1: $180k
- Broker #2: $150k
- Broker #3: $400k

I knew Broker #3 was completely off with his number. I did not care that he was wrong - I pushed him hard just to see how entrenched he was that he's right.

He was completely confident in it, and did not bend an inch on his assessment. So confident, in fact, that he gaslit me into (briefly) second guessing myself 😂

Structured a commission agreement in which he's paid 3x if he signs a lease with a new tenant - in effect, making him indifferent to killing a transaction with my existing tenant.

(This is an extremely high risk maneuver that I would not recommend, but I only did so because I knew how lopsided the leverage was in this particular situation. A key element was I maintained a backchannel with the COO in case my broker's negotiations soured, and I needed to 'clean up' his mess)

Puffed him up, then sent him into the negotiations and told him I will not accept a penny less.
Very quickly after, the deal landed at $275k/year, 3% annual bumps, and a happy Tenant.

In some situations, you need the other side to think you're absolutely nuts to maximize your position.

This is not a political post 😜

[3NDeveloper @3NDeveloper]

@realEstateTrent It's very simple - just hope for the best.

Focus on what's in your field of influence (e.g. family, friends, work), and don't sweat what you can't control.

[3NDeveloper @3NDeveloper]

Doubt it.

This creates too much exposure for Sellers during the transaction process, and shifts the burden fully onto a Seller for representations made / documents produced.

What happens when a Buyer closes escrow, and finds out the building square footage is off by 5%?

It's always a good practice to give Buyer's a proper due diligence period just to avoid post-close issues.

I've received 7-day DD offers before from Buyers, and I counter them with at least 15 or 21 days.

[3NDeveloper @3NDeveloper]

@realEstateTrent Save more 😂

[3NDeveloper @3NDeveloper]

@BillAckman Nice 😂

[3NDeveloper @3NDeveloper]

@YOCspread Bingo

[3NDeveloper @3NDeveloper]

Working on a development project which has environmental contamination (former gas station site).

Not my cup of tea, but there is a long story behind this.

Engaged my environmental consultant to perform a Phase 2 investigation, and to provide a recommendation on how to handle the matter.

He does so.
His recommendation feels too 'light' 🙃

I decide it's best to get a second opinion, and hire a very well known, national company for this.

- Proposal is presented
- Contract signed
- Retainer funds wired

Off to the races.
ETA: 10 Business Days (ending last Friday).

On Thursday, I send a follow-up to check-in on the status.

"The report is under final review - we're expecting to get it to you by tomorrow"

Okay - nice 🥳

Friday rolls around - no report.

Monday rolls around - no report, but I get an email notification that I have a package being delivered by USPS.

Tuesday - nada

Today - my USPS package arrives.
I open it.

It's a gift box of fancy pecans, and a note from this environmental company about how important my relationship is to them 🤨

How much is this upcoming report going to end up costing me? 😂🤣

[3NDeveloper @3NDeveloper]

@skylarromines No and yes - not your conventional insurance.

I have a Rep & Warranty from the Seller that the property never stored hazmat.

Seller is a City with deep pockets.

[3NDeveloper @3NDeveloper]

@reelestateDave @Dodgers Unfortunately for us 🥲

[3NDeveloper @3NDeveloper]

Need to understand who your counterparts are, and adapt the negotiating style around them.

In SoCal (LA) - you need to leave room in the offer to negotiate. These Sellers expect it, and need to go through the process of 'fighting' for their best deal. Only way that happens is if they provide counter, and get countered back. It is what it is.

With Tenants/institutional players - I always provide the terms upfront, and (honestly) tell them there is very little room to negotiate. Take it or leave it.

With LA-based Sellers, I leave a lot more room for negotiations. It's simply part of the process.

I agree with David - it is akin to a poker game.