Student housing is a popular investment option, and recently a client decided to buy a student-housing complex near the University of Oregon. I suggested they talk to one of the local lenders who is very competitive. They did so, but they were also courted by another bank. That bank promised them the moon, so they decided to go with that bank rather than my recommendation.
As with most real estate deals, time was of the essence. My clients were trying to close the deal during the window when students were moving back for the fall semester and looking for available apartments. The property they wanted to close on was owner managed and had substantial deferred maintenance.
In mid-August my clients signed a purchase and sale agreement and since we knew we wouldn’t get closed before Labor Day weekend, I negotiated into the contract that the owner would hire my clients’ professional property management company while we finished the financing steps with the lender. Our closing date was set for October 14, but the goal was for the property management company to fill the units with students while we worked on financing. The owner was resistant to this idea, but his broker got him to agree: As long as my client had their appraisal, inspections, and due diligence completed and we were just waiting on the lender, then the seller would agree to let the property manager take over.
In an effort to move expediently, my clients paid a $1,000 rush fee for an appraisal, which was completed in five business days. It then took the lender over three and a half weeks to review and approve the appraisal despite that rush fee.
When the appraisal arrived, it acknowledged that by addressing the deferred maintenance and hiring professional management, my clients would be able to receive a $150 rent increase per unit. The appraisers said this would raise the value of the property by $500,000 within 12–18 months if the plan was fully executed. That was the good news.
The bad news was that we continued to hit substantial unexplainable delays with the lender during the underwriting process. “It’s on the underwriter’s desk” they would say, and then there would be lengthy silences. We finally closed the transaction on October 30. This sounds close to being on time, but because it took the lender three weeks to review the appraisal and complete the underwriting, it delayed the property manager from taking over. As a result, the complex was not completely filled.
How Relationships Save Eugene Commercial Real Estate Deals
Fortunately, I had a good broker on the other side who knew me and who has done deals with me for decades. If that hadn’t been the case, this deal would have been lost. This broker knew I would get the deal closed, despite the delays from the lender. A missed closing date often kills deals, but this time it didn’t.
My clients should have listened to me. I have relationships with lenders I trust. If my clients had gone with my recommendation, we could have avoided near disaster. Relationships make a tremendous difference in real estate. Choose an experienced and recommended broker, and let their relationships work for your benefit.
I’m here to help you find the right property to meet your investment goals, and to guide you through the process. You can reach me at 541-912-6583.