Real Estate Observer This newsletter will provide frameworks & analysis you can use to confidently invest your capital in private market real estate. It is written from the perspective of someone who reviews many deals in search of one that fits my personal or my investor community’s preferences. To keep up with what I’m working on, click here. |
We explored a multifamily opportunity earlier this year but ultimately didn’t move forward. Our main issue is that this was a fund investment, and we’re much more comfortable choosing single properties.
I thought it might be helpful for current and prospective limited partners to see a sample of the kinds of questions we ask during our first round of due diligence questions.
Below are just 12 of the many questions we asked, in addition to the ~4 meetings we held with the operating partner on this particular opportunity.
We like this team a lot, and think they are great operators. We are considering an investment with them in Q1 of 2026. If you’d like to check it out for yourself, you can follow along here.
Names and identifying details have been replaced with “XXX” to avoid sharing any sensitive information.
Will the institutional LP have any repayment priority relative to our dollars in any deal?
No repayment priority, funds are pari passu.
What are the roles with each of the GPs team? Do you plan on partnering with xxx and xxx on the majority of the projects or just these first two?
xxx and xxx will serve as the lead GPs of their respective transactions with xxx serving in a secondary role providing local market knowledge/support and the participation of our non-profit which is necessary to achieve the outlined tax abatements. These are both groups we have spent several years building relationships with and they have brought us into these transactions given our relationships and our ability to satisfy the non-profit partner requirement. We envision ourselves serving as the lead GP in future fund deals. We do not plan on partnering with xxx or xxx on those but that remains a possibility, and we have a lot of confidence in both groups to execute on the outlined business plans.
Who has ultimate decision making rights? Generally speaking, what provisions do the institutional equity partners have that could impact the investment?
xxx has an institutional LP that splits major decision rights with us and xxx. xxx is capitalized with high net worth investors with no institutional LP and major decisions are controlled by xxx.
Is the lender spread above the 5-year 1.98%?
Our most recent quote was 1.62% over the 5-year. This is going to fluctuate during the process. The model auto-populated that spread, but we manually entered a number from a quote.
Given potential illiquidity at the end of the hold period, what cap rate would allow us to refinance without requiring a capital call at base case NOI projections? What if we don't get the tax exemption?
At a 6% exit cap, in our base case, we would need a 50% LTV loan after 5 years to refinance without a capital call. Without the tax abatement, we would need a 60% LTV loan to refinance without a capital call.
Do you utilize any type of GP catch-up structure?
No.
What percentage of the capital raise is the GP putting in?
Typically we put in 10%.
Who is the property manager, and what is your prior experience working with them?
xxx. We've known them for years but never worked with them before. We're using them here because they are currently managing the assets, and we believe they're doing a good job.
County property taxes reassess in xxx—is this factored into projections?
Yes. We assume taxes increase to approximately….goes onto to talk about each property.
How do your current deals compare to original NOI projections at acquisition?
Pretty well. See attached.
Follow-Up Requests
Can you provide the most recent delinquency report for each property?
Do you have the last 3 years of financials?
If you’re interested in North Carolina single-family development or existing multifamily opportunities, you can follow along by clicking here. I usually only come across 1–3 deals per year that are truly worth investing in.
Clay Stanley
704-608-8488
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