Once a market has been selected, Bluefox Ventures will only consider assets in that market that pass our stringent criteria. There is a lot of time and work involved to vet out an opportunity. It takes weeks and sometimes months of work before our investors receive information about the deal. The opportunity can come from multiple sources, like brokers, lenders, or property managers, once the property is publicly listed or sometimes while off-market. We’ve been working hard to build those relationships and will continue to do so.
Below are a few of the steps we take to evaluate an asset:
1) Selecting An Asset: Once we know of an opportunity in a market we’ve selected, we evaluate the property against our criteria, such as vintage (age), neighborhood, schools, crime, and household income to mention just a few data points. Once an asset meets our stringent criteria, we move it to the next phase of our qualification process.
2) Reviewing The Financials: Once the asset is selected after passing our asset criteria, we obtain all of the pertinent financial data for the property. This will include the trailing 12-month P&L and rent roll. Additionally, we will look at tax bills, collections reports, occupancy history, and the broker’s Offering Memorandum (OM) if available.
3) Understanding “Whisper” Price and Offer Expectations: At this point, we like to better understand the seller’s expectations in terms of price and timeline. The “whisper” price is the seller’s price expectation. It can be a per door price or total asset price. This helps us to understand where the offer price needs to be, or at least close to it, to be seriously considered. If we are too far off from the whisper price, it doesn’t make sense to submit an offer. It would be a poor use of our time and the broker’s time and can hurt the relationship. Next, we need to understand the Call for Offers (CFO) so we can prioritize our deal flow and focus on the assets that have an earlier CFO.
4) Underwriting – First Pass: This is our first pass at underwriting the opportunity and the goal is to do a high-level financial evaluation. This will help us determine if we can get close to the whisper price and if it makes sense to invest more time in this opportunity. Conservative assumptions are made based on market rental rates and costs.
5) Engaging The Extended Team: Once we see that the property has the potential to meeting the investment return expectation, then we engage the property management company we have decided to use in the market the asset is located in. They will create their own pro forma and give us their view on potential rental rates, operating budget and CapEx budget. We will also engage our lender to better understand what the loan amount and terms would look like for this asset.
6) Underwriting – Second Pass: Once we have received inputs from our property management partner and lender, we update our underwriting with any new information. We also look at sales comps to ensure we have a price that is competitive.
7) Touring the Property: Once we feel confident that the deal will work for our investors, we move this opportunity to the next phase of our qualification process and schedule a property tour with the broker. This is a chance for us to look closely at any capital expenses and deferred maintenance items that we need to account for. We can also look closely at the interiors to verify our value-add plan. To continue to build good relationships with brokers, we want to make sure that we only tour properties that we are serious about and confident that we can purchase.
8) Final Underwriting & Letter of Intent(LOI): After the property tour, we take a last pass at the underwriting to make sure we have captured all needed CapEx and deferred maintenance items in our budget. Usually there is a price cutoff that gets you in the best and final round, which typically consists of up to five groups of potential buyers. Once we get a feel from the broker on that price cutoff, we submit an LOI.
9) Best & Final Offer: Once we make the best and final round, the broker will send the most up to date financials and a buyer questionnaire. The questionnaire will have questions about our history and experience as well as the debt terms for the deal. The seller’s goal is to have confidence that the buyer selected can close the deal and will set up time to interview us once the best and final offer has been submitted.
10) Deal Awarded: Once the deal has been awarded, a Purchase Sales Agreement (PSA) will be created and agreed upon between the buyer and seller. This is usually a two-week process.
After the PSA has been signed, the Due Diligence process begins, which includes on-site visits and inspections. This is when we will start to put together the information about the deal and legal documents for our investors to review. The process laid out will help us ensure we only bring deals that are strong and worth of your investment.
Let’s connect to see how Bluefox Ventures can help you diversify your portfolio by investing in alternative assets like multifamily real estate.