Acquisitions with New Business Development
It’s no doubt our company has grown so much in the past year, branching out into new and existing markets alike. Sure, we get to hear all about our newest property additions and developments after the fact. But how do we know which properties we want, and what’s the process behind it all?
We decided to get down to the nitty gritty itself! Ethan Lewis, one of our Financial Analysts, took a moment to sit down and explain the process of property acquisitions, start to finish. Understanding this is so beneficial, given that we take so much time and energy to manage our sites. Who doesn’t want to know where it all begins?
Acquisitions
1. A broker will send out an email saying they have a new property listed on the market. We reach out to them to find out when offers are due, and what they expect pricing to be.
2. From there, we add that property to our pipeline, where we keep track of all of the properties that hit the market, and all of the properties that we are working on. Normally, we review once or twice a week to ensure that we are up to date with all of the properties that have hit the market. Our corporate investment committee reviews each deal based on a multitude of metrics that center around the property, the market, and the school. The lead on the deal (which could be any of our team members) presents the deal to the rest of the investment committee. The members are Donna Preiss, John Preiss, Susan Folckemer, David Leake, John Revington, and Jeff Bartholomew. This is also when they decide who will be the target equity partner for the deal.
3. Now that the deal has been approved for underwriting, we download all of the information from the broker's data bank, typically a few trailing 12-month financial statements, a rent roll, a prelease report, and the broker's offering memo (otherwise known as the OM). We then break down all of the information provided, and load our model with the cleaned data. We will reach out to our insurance provider, tax consultant, and the debt team that we are close with, for insurance, tax, and debt guidance on the particular deal.
4. Next, we meet with Adam Byrley, Sara Clark or DeWana Falks, whichever regional would be over the site, and the Construction Management team to go over what potential business plan we could put in place to increase the value of the property, either through unit renovations, other income increases, expense cuts, or some combination of all three. We will also schedule a tour of the property at this time to ensure that the business plan makes sense given its location or the strength of the market.
5. We then meet with John Revington to review the first pass model and double check all the numbers prior to sending it over to the targeted equity partner. Once the model is sent over to the partner, we get a meeting to review the model on the calendar to make sure that we answer any questions our partner has and ensure that they also feel good about the deal.
6. Once they let us know we are good to put in an offer, we meet with our attorney and draft up a letter of intent (commonly known as a LOI). Once the draft is complete and approved by our partner, we send it over to the broker for them to share that offer with the seller. Once the seller has had a chance to review all the offers, they will select anywhere from 3 to upwards of 10 groups to compete in the "Best and Final" round of offers. For this round, brokers will ask any of the groups participating to complete a buyer questionnaire form, which showcases your firm to the seller and why they should pick you.
7. In order to give our best and final offer, we have an all hands call, which includes the NBD team, the PM team, the Construction Management team, and our partner to make sure that we have thought of everything we could do to increase the value of the property. From there, we will get a revised LOI from our attorney and send it over to the broker, along with the completed buyer questionnaire. Once all the "Best and Final" offers are in, the sellers will set up calls with each group who submitted offers to talk through the questionnaire and how they are approaching the deal and anything else the sellers want to ask or discuss. As soon as all of the buyer calls have been had the seller will make their decision and award the deal.
8. Upon being awarded the deal, we kick off our due diligence process and our debt process. Depending on our partner, we will either need to walk a percentage of the units or all of the units, perform a lease audit, get inspections done on various items, ect. For the debt process, we send them over anything they need, be it financial, property data, ect. They will get quotes back from varying lenders, either federal agencies like Fannie Mae and Freddie Mac, life companies, such as Northwestern Mutual and Allstate, or banks, such as First Horizon and First Citizens. Based on feedback from the quotes we will select our lender. Once everything checks out from the due diligence and debt side and the due diligence period ends, we pay our first deposit of earnest money.
9. In between the due diligence period ending and the potential close, we work with the lender to ensure they have everything they need from a legal standpoint and their underwriting stand point to ensure that their underwriting checks out.
10. Once everything is settled from our partnership agreements and debt agreements, we move forward with the closing and get all of the funds wired to the closing attorney. Once all the funds have been wired and the closing attorney has everything they need, Preiss Company has successfully acquired a new property!
