Issue Analysis for asset managers is probably my favorite
topic of this series of four. It's the last series, but it's
really the main heart of it about what we do as asset
managers when we're wearing that hat in order to make those best
decisions, not only taking in those different issues that are
come up from the other analysis, like the analysis that we did,
in part one of the series, the video on property analysis, or
part two about financial analysis, or part three, on
market analysis. Now we take all that data in, and we apply it to
the issues at hand, in order to prioritize what projects we're
going to do in order to make sure that our budget is being
allocated properly, again, so that we can be more successful
as in our syndication in our investment fund, so that our
investors are happier and better treated and get better results,
which is at the end of the day, the benchmark for our success.
So I know you're going to find this video helpful.
We're talking about operations and custody. And in this video,
we're going through Issue Analysis. So the point of Issue
Analysis is, at the end, when you're doing your property
management plan or your your custody plan, what we're trying
to do is come up with a list of all of the issues that are out
there, develop a plan of what the priorities are, and
determine if there are things we want to take care of sooner
rather than later. Now, this obviously is an evolving thing
is well, it's just like the rest of our plan. And so what we're
trying to do is we're trying to set down a something in stone
that says this is where we're at today, this is what we're
seeing. So you can make plans for the future about what you're
going to tackle next. And then you also have the ability to
measure how good you were at estimating the the improvements
that you made. So after you've gone through your certainly your
Property Assessment and your financial assessment, that's
probably the right time maybe the market assessment as well,
that's probably the right time to start doing the initial issue
analysis, or the for the whole your whole custody plan. So
basically, what we're doing here is we're developing an action
plan.
So the best way to do this, I have found is to again, use a
table, now the table I would start with is I would basically
start ranking everything in priority. So you'll probably do
this in Excel or some spreadsheet, I would talk about
the priority of them, I would then define what the issue is.
And I would would not include solutions. In the definition of
that issue, I would just talk about the issue itself, the air
conditioning system is breaking every once a month, every 12
months or whatever. So I would then go through the cost that I
think it would cost in order to that I'm having as a result of
this problem. So if it's air conditioner, a track system, it
may be that my cost is I need to pay a service or service
contract is going up or whatever is useful. And then I have the
why. Now, it may seem self evident as why this is an issue.
But it's still useful to put down on paper why this is an
issue. That way you have a solid plan and you have something to
really make sure that you're checking your priorities against
you may find something may seem like very high priority. But if
when you get to your why you realize it's not or you may have
something that you thought was a very low priority, but because
of its impact, it is actually a very high priority and you want
to make you want to change it. Then we talk about the as is
versus alternatives.
Here I want to just quickly define what the Situ ration
would look like now versus what the different alternatives that
I have are. And we're going to talk more about like fleshing
out those alternatives in a minute. But I still wanted to
make some sort of reference to it here. I want to know what
improvement costs there are going to be.
Typically, these are these costs money, if they don't cost money,
then great, then it's, it seems like it might be something
simple to do with it unless it takes too much of your time. And
then what is the source of the funds? Is it your reserves? Is
it the tenants paying, you know, where what is the source of
that? So what you'll do is you'll take your spreadsheet
like this, and you'll just go down the list, you know, one,
whatever those things are, you could have the each fact we
discussed, maybe there is the parking lot, we'll need new, new
striping. Up, look what I said, I just told you don't put
solutions in here I went and put a solution. Parking Lot,
parking, lines fading. And there's a good reason why we
also don't put our alternatives in here, because it may be the
restriping. But maybe you what you really identify is, you
know, as you're writing or why it may say something like the
parking lot lines are fading, making it difficult for people
to know where to park, we've always had a problem parking
this anyway, G and as you write this, you're starting to realize
that maybe you need to revisit your parking plan as well. And
so you may want to change your mark, your parking plan, etc. So
you put those all down. So now you've got a list of actions and
you've got them prioritized in terms of where you want to take
them and what the source is. Now for the alternatives. Your
alternatives plan.
Here's what I would want to know. I would want to know what
is your pro forma today, so before you did this action, what
is your pro forma? I want to know if there is any. Any change
in your escalations. Percentage I want to know what effect that
has on noi. And what that dollar amount is? Because ultimately,
what I'm trying to find out is I want to know, certainly the
cost, you know, how much is this going to cost? But I want to
know what the existing unit let's say it's an H fac unit?
What's the existing value? So what I'm trying to find is, Am I
really adding value with this alternative or not? And then I
want to know, do I have any if there's dead on on that piece of
equipment or whatever? Is? It is there any equity in it? And then
I want to know, ultimately for the entire property. I want to
know
what my I want to know what my estimate is for my going in. So
before I do this cap rate versus going out. I ultimately want to
know what that change is going to be am I adding value to the
property above on the NOI line, which we're talking about here?
Or am I adding value in the in how its positioned in the market
so that it is is a better property and it appreciates
more? I want to know that sort of thing. And if the answer is
zero, it's fine that it's zero. If it's negative, it's fine that
it's negative. They Orton thing is that you're documenting what
these things are. So when you make a decision, you've got a
track record of that you can point to and say, Okay, those
were the decisions we made, what was good and what was bad. And
ultimately, for each alternative, we're going to do,
and I'm assuming that there's different alternatives. So for
each we calculate the cash on cash effect. Or you could do the
ROI that you're estimating, I want to know what the value
enhancement is. If this is making a change to the cap rate,
down here, if it's making a change to that cap rate, it's
going to have an effect on your overall value. And I want to
know what that is. And I want to know that in dollars, and then I
want to know what the net present value is. And I want to
know if they're, what the IRR is. So I want to know the net
present value. So I can determine whether this is a
change that's going to pause, really put money in the pockets
of my investors or negatively, I want to know what that dollar
amount is, because that will set a budget price for me. And they
will help me determine that well, I'm been trying to get my
investors a 10% return, I use that in my net present present
value calculation. And if I'm, if I'm seeing that I've got a
negative number there that I'm getting a negative net present,
or a negative net present value, maybe that's something I want to
take a look at. And then after we've done that present value,
so certainly it changes dollars amount, but I want some more of
more a quantitative idea as well about, you know, just what
percentage wise what effect that has over the term. So what's the
IRR of it? So I hope that helps. This is how we make smart
decisions about how we address each action that we decide to
make when we're doing the custody portion of our
operations. So that we make good decisions that are bounded in
rationality and that our are very logical. And then at the
end of the day, you can walk your investors through this and
you've got a really solid case for really everything you've
done. There's no second guessing there's no questioning. It's
either you're adding value or you're not. And that's really
what your investors care about. This is Tilden, Moschetti
altitudes syndication founders club and we'll see you in the
next video.
This is the last of this four part series of videos on asset
management. It was put together a little while ago for some high
top level real estate professionals, not only the very
best brokers but also people from investment funds from REITs
who wanted to take off the hat of working for somebody and
start doing syndications or putting together an investment
fund for themselves. My name is Tilden Moschetti. I am a miss I
am a syndication attorney for the Moschetti syndication Law
Group. Now if we can help you be successful, give us a call
today. Not only can we help you with the legal side of things,
the making sure that you're in compliance with the SEC rules
and with state regulators, but also applying our business
expertise and having done this many many times for ourselves as
well as our clients. Again, please don't hesitate to give us
a call