As Livi Kapital sees the market shift, we expect to find new opportunities to invest in. (Besides for equity brokerage services, we invest directly as well. You could see our investment opportunities by signing up through this link: https://www.livikapital.com/contact-us/)

And one of the most important questions we ask the sponsor, both when brokering equity or for our direct investments, is how was the deal sourced?”

And “What is the seller profile, and why are they selling?

These questions are fundamental.

During the past 3 years of high CRE pricing, we saw very many deals in which the story was:

– Broadly Marketed deal by top brokerage company
– Previous owner was syndicator who completed the value add plan and now wants to take his/her payday and move to the next deal
– Previous owner mismanaged (this was and is a very common claim by operators seeking to pitch an investment. The veracity of the claim is always difficult to ascertain, especially when the previous ownership was a professional investment firm.)

Those deals were ALWAYS hard sells to investors.

If there’s so much juice left in the deal, why didn’t the previous owner complete the job? Does every operator just stink at managing CRE? Don’t they do this for a living?

We are very picky about this nuance. We prefer to source equity or invest in deals with the following story:

– Bank ownership/REO: banks do not like to keep assets they’ve foreclosed on on their books. They also are not set up to manage real estate. They very often sell assets at a discount just to speed up the closing process and to ensure the buyer executes on the purchase.
– Long term ownership: Ownership that is advanced in age or looking to retire is often not so concerned with getting top dollar for their asset. They also very often have not aggressively pushed rents at the property, which leaves room for future ownership to increase revenue
– Motivated seller: A seller that is involved in a partnership or personal dispute and needs to sell is often a prime candidate for a discounted asset purchase. They are not as concerned with price and are much more interested in unwinding the partnership, at whatever cost.

Having a good story does not mean the investment is a good one. And a marketed deal from another operator is not necessarily bad. But there’s one thing for certain. If you are a basis buyer (Which means your strategy is to buy assets for a discount), It will be much harder to find an underpriced deal when you are buying from another operator who has “made his/her money and wants to move on.”

However, when you story is good. And the seller you are dealing with must sell for personal reasons, there’s a very good chance that you can underpay for the asset and still win the bid.