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Commercial Real Estate Pro Network

Commercial Real Estate Professionals who work with Investors, Buyers and Sellers of Commercial Real Estate. We discuss todays opportunities, problems & solutions in Commercial Real Estate.
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Now displaying: Page 1
Jun 26, 2019

Darrin: [00:00:07] In insurance, we do focus little on risk management and there's typically there's three strategies that are kind of the go to. One is, avoid the risk; two is, minimize the risk and three is, transfer the risk which is essentially an insurance policy that's your risk transfer method. I'm asking all of my guests now if they could share with us their biggest risk. And then if they could if you could describe how you go about managing your BIGGEST RISK. [00:00:38][30.7]

Ivan: [00:00:39] I'd love to but really quick you reminded me of something my my dad always says and and you'll love this. You know my father who's a great attorney mostly an advocate for the. The have nots in the world as a personal injury attorney but he's he's one of the good guys. Find him on a bus stop on a billboard. He would always say you can't have too much insurance and business because the incremental costs for adding more insurance is so cheap versus the risk that you're transferred. Right. [00:01:14][34.8]

Darrin: [00:01:15] Right. [00:01:15][0.0]

Ivan: [00:01:15] So you know BAM we've got a ton of insurance in every possible care that you could imagine because again it's transference of risk and you know umbrella policies for my family. So on and so forth. Going outside of the insurance spectrum, here risk is a huge part of owning a lot of income property especially at this point the cycle. And so we were constantly looking for ways to minimize risk. One of my biggest risks or perhaps the biggest risk next to just executing the deal which is why we have managed management company and house. We want to we're going to win or lose on our own account. Then I would say the next biggest risk and in some ways even larger is debt maturity risk. That's what that's what really hurt a lot of people in the in the Great Crash is that you had capital markets that were that were locked up right you couldn't roll over the debt. Or that your debt was called by the bank and you had to turn over asset that you were you were paying the debt on you're making payments every month and banker comes along says hey we did a new valuation and we'd like you to write us a check for a million dollars or put the property up for sale. So we don't want to be in that position so we avoid the banks. We primarily use Fannie and Freddie agency loans and we also use HUD. We've got several HUD deals most you will ask me if that means I manage a lot of subsidized housing. It's a common myth almost everybody thinks that that HUD actually finances A B C and D assets all over the country and HUD allows me to do is virtually eliminate downside risk and maturity risk in that I can lock in my interest rate. Thirty five years on a 35 year amortization schedule. And I can still, depending on the program and the points I pay and the interest I take I can still have a prepayment penalty burn off after five or 10 years. But if everything goes to you know what in a handbasket I don't have to do anything with my HUD debt I can continue to cash flow batten down the ship and ride out the storm. And that I think will suit us here at BAM, very well over the next 10 20 years. [00:03:40][144.3]

Darrin: [00:03:41] No I appreciate you sharing it. On the HUD, I just want, is that affordable housing, is what we're talking about or is it not. It's not. [00:03:50][8.5]

Ivan: [00:03:50] I'm I'm using HUD on market rate housing. I think what you're asking is Is it tax credit housing, is it affordable it's so. Affordable gets thrown around a lot. [00:04:01][10.9]

Darrin: [00:04:01] Right. But I mean I mean tax credit I guess what I was looking at. [00:04:04][2.7]

Ivan: [00:04:04] Right. These are not a tax credit these are not bond deals. These are we by market rate housing and we simply instead of going to a bank or Fannie or Freddie we go to HUD. We get a little bit higher leverage. A lot more brain damage in getting the HUD money. [00:04:22][18.4]

Darrin: [00:04:23] Record keeping. [00:04:24][0.3]

Ivan: [00:04:24] It in compliance. Before that I get eighty five percent loan to cost. So acquisition renovation dollars reserves big reserves. Eighty five percent loan to costs thirty five year amortization. [00:04:42][18.1]

[00:04:44] Thirty five years fixed if I want to keep it that long even though I'm doing a seven to ten year hold in most cases, or a seven to ten year recap re refile. If the proverbial shit hits the fan I can just sit there. Cash flow of HUD. [00:04:59][15.3]

Darrin: [00:05:00] Is the HUD. Product is available all through multifamily. I mean is there a unity any asset or. [00:05:09][8.4]

Ivan: [00:05:10] A b c d e f assets you can transfer time. [00:05:15][5.3]

Darrin: [00:05:16] That's let's say I always hear the Fannie and Freddie references. [00:05:20][3.5]

Ivan: [00:05:21] The older, smaller, it gets is harder. Well so I'm very lucky I've got one of the biggest HUD shops in the US. Based here in Indianapolis and I'm really good friends of that shop and we do it twenty five years. They've got a big bank in the on the other side of the org chart. So they bridge me to HUD. They underwrite me to HUD up front just like your mortgage broker on your house would underwrite you to Fannie upfront and then they hold the loan until we until we close the HUD funds. And it's a great program. It works really well and it takes a huge. Amount of risk. Right off the table which is a young dumb developer learned the hard way. It's a very good thing. [00:06:07][46.3]

Darrin: [00:06:08] Downside a minimal downside. No, that's awesome. [00:06:10][1.9]

Ivan: [00:06:10] Warren Buffet said it first, right. Don't lose money. That's the first rule. Second rule remember rule number one. Then let's figure out how to get some yield. [00:06:18][8.7]

Darrin: [00:06:20] I love it. I really appreciate you sharing. That's one of the. I love asking that question and seeing when I'm when I'm getting back and the answer is have been just very fruitful. So I appreciate that. [00:06:20][0.0]

[358.2]

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