How to Win Deals in a Heated Environment

Part 1 of 2

SANTA ANA, CA—Structure PMG's strong relationship with the real estate brokerage community has been crucial for deal flow, managing partner Eric Kramer tells GlobeSt.com. The locally based investment and property management firm has acquired Villa Grande, a fully occupied, 44-unit apartment property in Buena Park, CA, for $8.6 million from Sue Pebley Management LP, one of the latest in a string of acquisition successes for the firm. In Part 1 of this two-part exclusive, we spoke with Kramer about competition in the apartment-acquisitions arena and what his firm does to stay ahead of that competition. In Part 2, we will discuss third-part property management, how it has changed and how it benefits the investor side of the firm's business.

GlobeSt.com: Please describe the competition that you are seeing when identifying a property to acquire.

Kramer: Right now, there is a little bit of a frenzy in the investment market for apartment buildings in Orange County. With a low inventory of apartment buildings available for sale, the properties that do come up get a lot of attention. When there is this much competition, many buyers who lose out on a possible acquisition often get a little too aggressive on the next one that comes up. I do not consider someone competition just because they will pay more than me; I am more concerned with the long-term investor. The long-term investor, who will pay the same as I will, will remain calm and let it go if the price terms do not make sense because they are disciplined, smart and they will be here for the long term.

GlobeSt.com: What have you heard from sellers as to reasons why Structure PMG is being selected as the buyer?

Kramer: Structure PMG is being selected for several reasons, including a regional presence, good reputation with the brokerage community, good relations with the lending community and the ability to communicate clearly to the sellers that we know what we are doing. We have acquired six buildings within a 12-mile radius over the past three years. We are principals and do not participate in the transactional fees—we want the deal, not the fee. We have completed our acquisitions with a large equity investment and the most active lenders in the market including Chase, CapitalSource Bank, Independence Bank (now Pacific Premiere Bank) and Opus. Our lenders have gotten on the phone for us with sellers to let them know that we have gotten and can get the financing done as fast as the lending process will allow. It has also helped us that the sellers are able to see that we are experienced, we own and operate a number of real estate assets, we focus exclusively on real estate investment and management all day long, and we know what we are doing.

GlobeSt.com: What is key to acquiring a multifamily building in today's competitor investor environment?

Kramer: We buy primarily on cash-flow yield (cash on cash) and have to fall in love with the yield, not the deal. We have to be able to say to ourselves that we would want to own and operate this building in perpetuity, that we can get enough growth between now and what we anticipate will be a higher-interest-rate environment in the not-so-distant future. Our investment decisions are not based on the market going up forever and needing sales proceeds to make the investment work. We like the market, and we have some optimistic assumptions for growth. We want to do more in this market, but we are not going to do something just to do it—it has to be a good investment.

With respect to actually finding apartment buildings to acquire, we are big believers in working with the real estate brokerage community. All of our acquisitions were brought to us by the real estate brokerage community. We believe that there is value in representation as well as the services and experience that a good real estate broker brings to the acquisition process. We have strong relationships with real estate brokerage community, and we depend on those relationships for deal flow.