Tilden Moschetti: Hey Tilden,
Moschetti here, hope you are

doing well. Coming to you live
from North Carolina wanted to

welcome you to this webinar
today we're going to do a lot of

very cool things. We're going to
go through underwriting, but

we're gonna do it in a manner
that you probably haven't seen

before. Web underwriting itself
for financial analysis is

probably considered one of the
most boring things you could do

by many syndicators, I actually
find it extremely exciting. And

you'll see why once we dive deep
into into the financial analysis

picture. And when you look at it
from the concept of levers,

which is what we're going to
talk about, you'll see that

there's a lot of possibilities
and how you can shave deals into

deals that not only work really
well, but also work very well

for your investors. At the end
of the day, what we're trying to

do is we're trying to build an
investment that investors will

invest into, but will still make
you the most amount of money. So

a lot of times how I approach
the financial analysis picture

is I start with my fit, right,
the founder investment theory,

and I've got videos on that. And
I'm sure you've heard me talk

about that before. But what when
you start with the fit, and you

get an idea about what your
investors are looking for, not

only from a financial picture,
but also from what sort of deal

in general they're looking at it
from what sort of lens? Are they

looking at it as a cash flow
deal? Are they just needing a

long term thing, what's gonna
get them excited those things,

then you can start to build your
investment offering in a way

that that really dials it in
specifically for those

investors. So starting in the
financial analysis picture, we

start with, you know, the
typical things that you might

see an advertising. So what do
my investors expect to see in

terms of IRR or expect to see in
terms of some sort of multiple

or something like that? The
problem with that is that we

see, and you see this on
advertisements all the time on

Facebook is the all that that
syndicators are talking about is

those those measures, heads,
hey, we've got a great we've got

a 15% IRR. We've got a 15% IRR.
I mean, if you scroll through my

entire feed on Facebook, because
I click on every single ad that

syndicators put out is just full
of these and it's just IRR after

IRR after multiple after
multiple after IRR after

preferred return preferred
return IRR. And it's there's

nothing at all interesting,
which puts people which puts

syndicators in the role of just
a commodity where you're

competing on IRR, multiples
preferred returns, things like

that. And what that does at the
end of the day is it puts you in

a spot where now you're
competing on as a commodity

you're trying to be to give
investors the highest possible

return possible, even at
sacrificing at yourself. There's

a lot of ads right now that are
competing, saying, well, our

splits aren't 80% Like everybody
else, our splits are 95% to the

investor and only 5% to us. But
that's ultimately going to mean

for the syndicators is unless
they're really patting their

fees, which they are. But unless
they're actually you know, if

they were doing it correctly,
and not patting their fees, and

just doing those 5% splits to
them, they'd be out of business,

they would be doing way too much
work for not enough reward. So

let's go through sort of a high
level in terms of what how do we

do financial analysis and how we
break things down. Of course,

you can do questions, there's a
q&a in there in the bottom, feel

free to use that. I'm not going
to be checking it too much,

because I want to go through in
detail a lot of these. But

certainly towards the end, I'm
hoping to have enough time. But

there's a lot of information I
want to go through. And so let's

go ahead and get started with
that. So let's open up a

whiteboard. You've seen my
webinars before you know I love

the whiteboard. It gives me a
good chance to to put everything

down a nice place. So when it
comes to financial analysis, and

when it comes to writing a
performance so even your real

estate agents when they building
a pro forma, there's two sets of

things that are going on at any
given time, right? They're

looking at facts and they're
looking at a assumptions. This

is how every analysis starts
with those two items. So what

are the facts, we've got simple
things like size of the

property. And by the way, I'm
going to use like an apartment

building as a sort of a template
here. Most of my clients are

syndicating multifamily
properties. It's just a starting

place, it doesn't matter if this
is real estate, that's

multifamily real estate, if it's
a, if it's an office building,

which hopefully it's not right
now, if it's a multi tenant

retail building, which hopefully
is just a great asset class

right now, or if it's something
else entirely, and this is the

same sort of thought process is
that everything starts with

facts and assumptions. So we've
got the size of the property,

we've got the lot size, you
might have the Fars, you've got

the existing tenants. And you've
got other factors, too, right?

It's located in somewhere, and
that somewhere has demographics,

you've got the operating
expenses of today, you've got

property taxes, you you've got,
if you have don't own this

asset, yet, you've got the fair
market value, which is the price

you're paying for it, right,
you're buying this property for

something. And so you've got
this set of facts. There's other

facts too. And we'll get into
some of those in just a second.

But let's talk about some of the
assumptions that are going on.

Well, we've got we're talking
about existing tenants. So what

is the likelihood of renewal?
Right? They're on a lease,

what's the likelihood they're
going to stay or renew? That may

change everything, right. So in
some places, where there's rent

control, you may not be able to
move tenants out, if they

planning and if they renew,
you're not going to be able to

increase the value or, you know,
redo the inside, in order to

charge them more rent, if
they're there. You've got what's

the likelihood of default.
Right? How likely are is that

sort of tenants going to be just
up and leave. Now if they're on

Section Eight, the likelihood of
default is very, very, very

small. But the likelihood of
renewal is probably is probably

also small, but the rents are
being kept down. Right. But if

you've got a, if you've got a
very huge luxury building, with,

you know, all sorts of upgrades
already done, the likelihood of

default may not be very good, be
very big dependent on the credit

of your tenant. But it could be
very high. And so this is all

pieces that were going into your
financial analysis, and we'll

talk about where those fit in in
just a minute. We've got the

demographics of the city, or the
location. Those evolve over

time, we talked about
urbanization, and now the

gentrification and things like
that, as they continue to

expand, but what about
demographics, like the job base,

you know, you can have the
luxury apart. You know, a good

example of this is Flint,
Michigan, right? So right before

GM left Flint, Michigan was a
booming town, huge opportunity.

Great place, if you own an
apartment building in Flint,

Michigan, you know, your tenants
had an extremely low likelihood

of default, and extremely high
likelihood of renewal, great

demographics, great job growth,
and then GM decided to leave.

What about the demographics of
where that property is located

now? Are the demographics going
to be good? Or they're going to

be bad? What are we seeing for
the future? That could change a

lot, right, if we're telling our
investors well, is that we have

fantastic demographics, we've
got all this job growth, what

happens if that job growth
doesn't occur? And then we've

got other things like, like the
assessed value, depending on

where your property is located,
property taxes can change on the

assessed value, right, so that
that may be a big wallop that

could happen where it could
change everything. And so what

are those components that really
make up what the future holds

for this property? Well, a lot
of times we care a lot about

rents, right? rent growth means
higher values of the property.

So in terms of rents, what are
the facts as it relates to

rents? Well, we've got
historical facts, right. So we

have your historical terms that
have been successful, you have

historical vacancies. You have
historical brands. And you have

your historical turnovers. In
you have your historical times

the lease, time to lease.

But what about the future? What
are what are the assumptions

that we make? Well, when we're
talking about rents, those

future rents, almost everything
about it is not is an assumption

that we're making. And those can
radically shift things. And

we'll see how that's just an
enormous lever. All these things

are enormous levers that can
move everything for how things

are portrayed. So, so we've got
things like your future terms,

you know, what terms are you
going to be able to offer? What?

What vacancy is it? So let's
talk about vacancy real quick.

So in Houston right now, which
is where Apple's way took place,

right. So Apple's way is sort of
the basis that I've been

communicating about this webinar
to you. Apple's way had

basically bought a huge number
of doors with something like

2000 doors, in Houston on
multiple properties. And they

made a set of assumptions. And I
happen to have found a video, if

you look up Apple's way in, in
their Facebook page, you'll be

able to see the video that
they've left on. And he's

talking about the deal that
they're doing, and what he's

predicted projecting to do. And
he's saying, well, we've got a

tremendous, great vacancy rate
is one of the one of the anchors

that he's been talking about.
The vacancy has been always

historically low in Houston. But
actually, that's not true. There

was an article in costar today
that came out exactly on this

topic. And the article said that
that vacancy amount that you in

Houston, is actually going up,
and it's going up pretty

dramatically. Now, why is that?
Why is Houston vacancy going up

so much? Because they have a
good job area, right? So it's a

good state, it's got low taxes,
why is their vacancy going up?

It's because all the developers
have been coming in and building

all this product. And so there's
now the all this brand new

product, that's great there to
do. And that's exactly what

Apple's way didn't count on.
Right. So they were projecting

that they were going to buy this
building, they're gonna buy it,

or buy these sets of buildings.
And they were going to be just

like the shining gold star. And
they that rents were going to be

driven up, they were going to
drive a prince by improving

properties by about by adding
about $3,000 of improvements

inside each property. And
they're going to be able to

charge between 203 $100 more per
month for those properties. So

immediately, in 10 months they
were going to be making it was

going to make the turn and I
could have all this increase

increase in value, right? So
there was this hidden as this

hidden value that was there. But
then, so they were saying, well,

rents are gonna go sky high. And
that's how we're going to be

able to get you I think it was a
24.7 IRR. And we'll go into that

in a little bit more detail. All
right. So they were predicting

that, but what what really was
going on at the same time, is it

wasn't rents that were going up,
it was vacancy that was going

up. And what happens when the
supply goes up, demand goes

down, right, and so rents go
down. So rents were actually

being depressed because there
was a lot of new product out

there. And these regular
apartment buildings that there

was really nothing special at
all. And they weren't very

attractive and meaning they
weren't these were not the

luxury apartments that they were
trying to build them out at. So

there is no way there are people
that people are going to say,

Well, gee, I'm gonna pay more
rent in these places, rather

than go across the street go to
the brand new building with the

well known operator who's, you
know, who makes everything

fantastic for me, at the same
rent that I was paying before

Apple's way raise their rents.
So vacancy has been going up.

Other future terms we've got we
talked about is what are those

future rents going to be able to
do? Are we going to be able to

charge those additional two or
$300 a month in terms of rent?

That's a lot of the problem that
we're that you that we see

turnover? Now, I don't know
about specifically whether the

turnout, what the turnover rules
are in Texas, but let's assume

that it was okay. That they were
able to move tenants out and

improve property, improve the
occupancy, improve the level of

improvements so they can demand
more rent. But what happens when

those tenants want to stay?
Right? So you either have a

choice between improving their
property, but they're going to

be wanting demanding less rent,
or if they're going to be having

that that problem anyway, where
people are going to be improving

their own space? Why wouldn't
they just move across the street

into the nicer building? And
then time to lease When you've

got a huge glut of properties
that are vacant, right, and that

are lowering rents in order to
induce people to come in, it

causes a huge existing problem.
And then also, what they was

trying to be done is capital
improvements. Not only to the

interior but to the exterior.
Now, capital improvements might

get some, some people to go and
stay in those places, but unless

it's something like that's
really improving the look like

refacing a building, it's not
the kind of thing that people

are gonna say, wow, they have
brand new air conditioners, most

people looking for rents are
just expecting an air

conditioner that works. In this,
so we have, we have an

expectation as a fact, of the
existing capital condition,

right. So we know what the
working condition is, uh,

basically, of those, but if I'm
planning to do a future capital

improvement, I'm guessing on a
few things, I'm guessing not

only on what the cost is going
to be at the end of the day,

right? I might get bids, but
doesn't mean that's actually the

cost. Anybody who's done
improvements knows that the cost

that you get, at first isn't the
cost you're gonna get at the

end, time is extremely not the
same thing, right? You're, it's

always going to be done in a
week, but it never is. And then

you also have the actual value
or the intrinsic value, let's

call it that was being added to
the property by that work,

you're guessing that the
improvements you're going to

make are going to induce people
in order to stay one to stay

more. And so that's sort of the
background as it relates to how

the facts and assumptions are
playing off each other. Right.

So the facts, you've got a
purely, you know, existing

thing. You know, this is it as
it is today. This is the

building as it is today. But
then as we got have the factor

of time, factored in. This is
why this is a pro forma. Right,

because we're making guesses,
we're making assumptions about

what's going to happen in the
future. So let's talk about the

four step method of financial
analysis. This is something that

I came up with a way to look at
it when I was talking when I was

coaching people. So I used to
coach people on how to do real

estate syndication. And so if I
wanted a method to be able to

show people the steps that I
think about things, when I'm

putting together a financial
forecast, and being able to talk

about it with investors, and as
I did, that I discovered along

the way, that actually it's more
than just step by, you know, a

series of blocks, there's
actually little levers inside

every single piece of it, which
moves the dial in order for

investors return that they'll
ultimately get in the amount of

money that Joe get. So let's go
through it. So we start with

basic facts and assumptions.

So your inputs here are
obviously the facts, those

assumptions that we're making
market data. Right, those all go

feed into our what our basic
facts and assumptions are, we

can't even come up with anything
until we've got that until we

know what the property is mean.
It's got to be located somewhere

we need it now the square feet,
we need to know those things in

order to make a do even begin to
do a financial analysis. So

first, we need to gather up all
those. The next step that we

have to do is we calculate our
NOI and our potential value.

So no y in and of itself is and
should be considered to be an

objective measure. So Atawhai is
an objective measure, because we

should have a very set amount of
what the rents are today that

that we have. This isn't a
Proform of these, this is the

NOI of today. So I know that my
rents for last month was X

number of dollars. I know that
I've got I've got operating

expenses every year of X number
of dollars. It's very set in

stone, right so I know what
those things are, but it's my

income minus my operating
expenses is my net opera. Adding

income, those are things that
are non negotiable, they're

things that aren't going to
aren't up for assumption.

They're there in every property
analysis, which is nice, because

that makes no y a very objective
measure as it relates to that.

And then we can figure out the
potential value by using this

market data to come up with a
capitalization rate. And I've

come up with the potential
value, right. So if properties

in the exact similar condition
in the exact same kind of

situation, with the exact same
kind of income structures with

our costs, in line, all those
things, we can kind of work with

those together and make it as
objective as possible. Now,

granted, potential value isn't
100% across the board objective,

but it's can be pretty darn
objective, if you're using

market data and using it in a
very objective manner, if you're

looking at it that way. And
that's the way appraisers work

mean, that's how they come up
with an objective potential

objective value of the property.
So our inputs here, our is our

rent roll. Our so our income,
maybe it's other income. You

know, if it's apartment
building, we've got laundry,

maybe there's some parking that
we charge additionally, for

things like that. Interestingly
enough, this was also one of the

levers that they were that
Apple's way fell prey to, they

made an assumption that okay,
well are we've got, we've got

this existing rent roll, right.
So we know who these tenants are

right now. But they made a bet
that well, if you can, you can

see this in their marketing
material. If you look at if you

go to use, like internet time
machine or something like that,

you can see that that what
they're actually saying is that,

while our rent control, our
rents are actually at, I think

it was like 85%. But we're going
to say that the property is

undervalued, because surely we
could get this, this property

immediately up to what the
market vacancy was at the time,

which I think is 92%. And I
could be totally off. That's

just for memory. So I think so
they're saying, Okay, there's

automatically the 7% Bump. Well,
there may be other factors,

subjective factors on why the
why the why those properties

were just didn't have the kind
of tenancy that that that all

the other buildings did. Because
there were older buildings that

were not as attractive, and
we're still charging relatively

high rents is probably one that
they should have taken into

account. But it wasn't, and they
were also saying, and on top of

that, we're going to have this
other income amount. And we're

going to just say, immediately,
we can we can charge $30 of

parking space a month. Well, I
don't know the Houston market,

but a lot of markets, you can't
just automatically charge for

parking, it doesn't happen
there, they're not going to take

it, you go to a market like San
Francisco or New York, or

probably even like downtown
Dallas, or probably downtown

Houston. And maybe you could
charge. These weren't downtown,

like luxury apartments where you
could just automatically charge

that this was middle income, you
know, regular, not very

attractive garden style
apartments. And then they've got

our backs, their operating
expenses. So they said that they

also they were going to count
there, they weren't going to be

counting their operating
expenses really at the same

level either, because they were
going to be saving water. And

that was going to be saving 30%
off of what that's the example

that he used in the video,
they're going to be saving 30%

off their water bill because
they were going to be putting

they were going to be saving
water. Well, even still, that

puts in a lot of tenant
improvements, or a lot of

improvements that need to
happen. A lot of capital

improvements, even to save some
water. And 30% is a pretty high

number for a savings on on
water. But these are the factors

that go into that feed into noi.
So the next thing, the next

piece of it and the four steps
is an analysis of cash flow. And

now cash flow comes after the
point in time event A why and

why is that? Well, suddenly now
we have a mortgage on the

property right? We may have
debt. And if there's debt then

suddenly now we also have debt
isn't an objective measure,

right? Some people can get very,
very cheap debt. Some people get

very expensive debt. Some people
don't do debt at all. Some

people lever it as much as they
can. So it's not objective. And

so debt has plays a huge role in
that There's also other factors

that object that that affect it.
And so you'll see that these

things start to get more and
more assumption a the higher up

chain we go. Because we have
also we have debt. Here as an as

an input there. We've also got
fees, right, we've got your fees

are starting to come into play
as syndicator, you're charging

fees, your money comes from two
sources, it comes from feeds,

and that comes from that split
of equity, right, so that equity

gain is part of it. But what
happens before that piece is

fees. So the amount that you're
being that you're being paid as

an asset management fee, that
comes before the cash flow

number, we also have capital
improvements. Right, they're not

a part of noi, so they're part
of cash flow. We also have the

amount that's being held back in
reserves, every dollar that's

held in reserve is considered
cash drag, right? Because you've

got this dollar that you've
basically is sitting in the

bank, should you need it, and
it's not able to act as a

machine and make money for you.
Right, it's not an invested

piece, I suppose you could put
it in a CD, but it's not going

to be making the same kind of
returns. So those are the inputs

into cash flow. And then the
last step was performance. And

now here, this is where were you
in your financial analysis. So

this isn't a linear a linear a
linear thing of that, that takes

place, I should remark. Now,
this isn't a piece of this

happens, then this happens. And
this happens, they sort of go

together in that same general
direction. But they're taking

place at very different levels
and very different thought

processes, which is why I write
it like this because it kind of

gets higher level higher level
higher level thinking as as you

go rather than into the weeds,
right, our basic facts is about

as into the weeds as we can get,
because that's the piece right

there, the square footage is
10,968 square feet. That's it,

right? It's not changing at all.
But when we get to cash flow,

it's like, well, we might take
debt, we might not. Or I might

charge a 1% asset management
fee. And I might charge a one

and a half percent asset
management fee. So that becomes

a lot more loose and it becomes
a lot more manipulative, like,

we're manipulating those levers
in order to see where we can

drive value. So what happens up
here, as our inputs, we've got

our purchase price. And we've
got our sale price, our

estimated sale price, we've got
prefs. If that's how you're

doing it, we're gonna assume
that you are just because it's

easier to talk about it in this
context here. These are all

inputs into performance. So
here, this is the big picture as

it relates to, you know, what
that overall piece looks like.

Right? So it's got, we've got a
set of facts that feeds into the

calculating noi that feeds into
the calculating a cash flow,

which feeds into the calculating
of performance. So, let me go

just quickly back through I was
writing down the size of the

property, the facts, things like
that. And then this shows that

that plan, so we go from that
basic facts and assumptions

here. We go up to the Neto, noi.
And potential value here, cash

flow here performance here. fact
that the whiteboard wasn't

sharing isn't a crisis. So we've
got this. But I'm assuming you

see it now. There we go. Okay,
perfect. Good. I'm glad you

said.

So let's keep going. So now
there's different as I was

saying before, there's different
levers and how we can change all

this. And we're going to talk
about this in terms of not only

in terms of what you can do in
order to shape your things and

how you can talk to your
investors and things like that.

But also want to backstop it
with things like that. That is

some of the Guru's are doing
when they put together a

syndication or some of the
things certainly that apples

weighted, so we'll go through
that. There we go. Okay. So what

are levers in noi? Right? So
we've got

and this is important, because
when we're coming up with the

potential value, we've got
obviously got noi divided by

Capri equals value, right? So
that's the calculation of value.

So the higher my NOI is, the
more I can and the more valuable

to mentally I'm going to have
and the lower the cap rate is,

the better, I'm going to have
that. Well, so on this top line,

and the things that move in a
Why is obviously your income.

The higher the income, the more
the more valuable it is. Right?

So I'm incented, to make sure
that I'm projecting my income

fairly and making sure that it's
that it's as high as possible,

but accurate, right. So I don't
want to leave things out in

terms of my income. I don't want
to leave out other income, for

example. But I also don't want
to, to create a situation where

like, what Apple's way did, I'm
making up income that didn't

exist, I wasn't saying income
that might exist as part of my

value. And that's why the value
was so incredibly under market.

So income minus expenses, right,
my expenses are another piece of

it. So as my expenses are down,
so is my, the value of my as my

expenses are down, so also is my
total noi going up, right, the

higher I can make that number. I
also have to figure in other

things, if I'm going to mark
things to market, then I also

need to take into consideration
my vacancy. Is that a stable

number? Right? If my vacancy if
I'm saying my vacancy is at 5%.

Can I say that? That's uh, that
that is the vacancy that it is

today. Now, is it fair to say
that well, we know that it can

go to 95%? Well, certainly, if
you had a tenant already signed

the lease, you probably would,
right? And you'd probably use

that as a big factor. And then
you've got the other one that as

it relates to your fees, is
property management. property

management fees are available
for you to take if you decide to

do the property management and a
lot of our syndicators do,

right, a lot of syndicators or
property management companies

that decide to syndicate and
basically what they're doing is

they're building out more
business for themselves, because

they're going to be the property
management company. Totally

legit. They shouldn't do it.
They're doing great. That's a

great idea. But it's also a
lever, right? Because how much

are we charging for property
management? Occasionally, when

I'm talking to new to
syndicators, and we're talking

about what that property, what
the property management will be,

I hear things like, well, it's a
triple net property, but we're

going to charge 8% On Property
Management. And 8% is not

property is not the property
management fee of a triple net.

No, it should be on a, on a
single tenant triple net, it

should be like two, if that. And
on a on a retail building, maybe

for four and a half, maybe as
much as five, there's complex

things going on. And this is not
in a mall context. I'm talking

about smaller triple nets. So
then the other thing that's

that's driving up value is your
Capri. And this is obviously a

little bit more assumptions,
right? So I'm looking at, okay,

well, what are the the other
properties in there? You know,

one of my mentors, you know,
many years ago, what he told me

to do is you have to walk every
every cop, right? So you have to

get out, you have to get out of
your car, go to search for stuff

to drive their drive to them,
they walk every single calm to

get a feel for them. And it
does, it makes a huge

difference. And when you lay it
out and you start looking at all

the comps, in comparison to
yours and build a matrix. Then

you start seeing, Oh, okay, this
is how my property really sets.

And this is why that building is
much better in this respect, but

maybe it's not as good in this
respect. And that's how cap rate

kind of changes. Again, it's
exactly the same thing that an

appraiser does in order to come
up with what cap rate to to use

in order to come up with value
when they're using the income

approach. So those are the
levers as it relates to noi

right? As it relates to cash
flow. Now we've got noi itself

is a letter right? cashflow
lovers. Noi is a lever right?

Because the higher the the NOI
that we're using, the more cash

flow we can we have at the end
of the day. Debt and how that's

going to function is a major
lever, right if I have an

interest on loan that's going to
automatically give me more cash

flow than the than one at the
exact same interest rate as, as

a one that's paying off the
principal, I may have some other

things happen because the
interest only period may only be

for a short period, but it's
going to change that cash

picture, it's going to change
the tax picture of how it

happens and how things get
passed on to my, onto my

investors, right, if I just
create, if I'm taking the value

of paying down my principal,
well, that principal payment

amount isn't going to be tax
deductible by my investors in

their taxes. The capex that I
plan on doing, then then here's

the big one fees, we've got your
asset management fees. Right. So

I have a huge range of clients
who do Dav all sorts of

different asset management fees,
and all of them are legit, we go

through them all, we make sure
that they're on that they're in

line. And when they choose a
higher number, and they know

what they're doing, they're
choosing a higher number,

because it's well supported.
Like if I was doing a, if I was

doing in development piece, I
would choose a higher do asset

management piece myself, because
it's going to take more work,

it's going to take more
communication about that asset

piece itself. On top of that,
and speaking of development, we

have construction fees, right,
your construction fees can be

you know, as high as 10% of soft
and hard costs, sometimes even

more. And that's not in counting
the developer fees themselves.

The amount that we hold back in
reserves. If I don't hold

anything back in reserves, I buy
the property for a million

dollars and I decide we're going
to have zero reserves. Well,

that's me, that's going to be a
very different cash picture than

me saying, Well, I'm also going
to hold 20%, back in reserves

and in the cash flow in order to
put them into reserves. That's

just do it all, obviously have a
20%, you know, effect on on what

the cash flow looks like. And
then cash flow is a forward

looking thing. Where do I see
growth happening? You know, do I

have? Do I see that happening,
and how's that going to play

out? When it comes to a
syndication, we've got

distributions. Now this also
plays into play. And in terms of

performance, we'll talk about
that in a minute. But

distributions make a huge
difference when it relates to

cash flow. Because if I make a
distribution if if I'm making

monthly distributions, right,
and these are my months, and

then per unit, I decide to
distribute in month one, I

decide to distribute $2. in
month two, I decide to

distribute $1. month three, I
decide to distribute $3. And

then month four, again, I decide
to distribute $2, and it's gonna

make a different cash flow
situation, that's certainly

going to make a different
impression on my investors, than

if I just did really the exact
same amount of $2 every single

month. But if I if growth has a
play play in this as well,

because if I make a play, if I
make this decision that well

here in month one where I'm
making a $2 distribution, I'm

banking on that, I'm not going
to have another, another period

of month and month three and
month four, where suddenly I'm

only going to be able to
distribute $1 again. So it has

it has a long term effect on how
cash flow works. And then of

course, your performance
measures. And this is ultimately

what your investors see. So this
is your this has, you know, as

your cash flow as a lever, which
your NOI is a lever because it

was before the price that you
bought the property for is a

lever in the overall
performance, right? Because it's

how much money is it going to
cost? How much money do you need

to raise in order to put
together the syndication? And

how much money ultimately is
that is that value? Right? So

that if the property is where it
costs a million dollars versus

500,000, but it's sort of the
same amount of cash flow? Well

certainly better choose the
500,000 than the million just

for performance sakes alone,
then you've got your projected

sales price. You know how
assumption they can get? I mean,

we have no idea what the sales
price is ultimately going to be.

We make we make guesses based on
our assumptions. And if you make

your assumptions fairly clear
early on that there you know

this is what it's going to look
like. Then you can make it you

can Start to build these levers.
If your levers are all in line

with with pretty much normal,
you can come up with a

reasonable sales price. But what
what sales lead Apple's way at

projected it was going to do was
it said, well, our sales price

is going, we're going to double
your money in two to three

years. And most of all of the
properties I've ever done before

I did it in two years, that's
what he said, Well, that's a

huge jump in sales price. And so
in order to necessitate that

sales price, they have to, you
know, radically drive up and why

I mean, it better go through the
roof. And we better be crushing

that Capri. All right, it better
be just demolishing like,

crushed, but to do it to double
it. And in that shorter period

of time. Now you have the cash
flow threatens beforehand, but

so it wasn't in full, you know,
that kind of appreciation, it

wasn't full, double your money
in two years. But still, you

know, it's probably 40% per
year. So that's, that's a lot.

So you've got your sales price,
then, of course, you've got your

splits, oops, let's pretend I
can spell. Press, etc, right. So

you know, if I'm, if I'm have a,
if I'm paying out a big pref,

that's a large amount of money
that's going to my investors

right off the bat, you know, if
I have a preferred return of

12%, that's a pretty big,
preferred return, I don't really

see 12% preferred returns
outside of like fundraising for

debt, if it was, but a preferred
return of 12. And like a, you

know, 8020, split? Wow, you're
given a lot of money to the

investor. So their performance
is going to look good. So at the

end of the day, maybe you can
advertise that. But could you

also advertise a lot better?
What if you did, you know, what

if you did an 8% preferred
return, which is fairly common

and not unusual, and you decided
to do you know, maybe one to

keep the 8020, split, whatever,
you know, and it translated to

still a 15% IRR. So it's all
that's that series of levers is

what leads to this deal. And
that's the problem that I'm

talking about, is because you're
leading to this this number, but

the assumption that is being
made here is not only how we get

here. Right? It's not only how
we get there, but it's also the

that's what the investors care
about. At the end of the day, an

investor if, if Bernie Madoff
went to an investor and said,

Hi, my name is Bernie Madoff,
I've got this great deal for

you, I'm gonna give you a 12%
preferred return, I'm gonna give

you a 9010 split, and it's gonna
give you an IRR of 40%. Are they

gonna do it? No, not gonna do
it. And that's, that's the key

difference. Is that the in
that's what's forgotten in every

single Facebook ad I've ever
seen for an investment? Is it's

making the assumption that this
is all that investors care

about. And it's not. It's not at
all what investors care about,

is you? They want to know what
why they should invest with you.

Not why are you going to get me
this number at the end of the

day? They want to know why you
and so that makes all the

difference. So you know, I have
a lot of clients who will put

together very complicated pitch
decks and I've one of my great

clients, he, he sent me a pitch
deck long after I'd been working

with him. And it's like 20 pages
of solid text. Well, nobody's

going to read it. And now it was
very well backed, and everything

was very scientific. But that
doesn't, why he was so

successful. I mean, there's no
way that that's not what

investors care about. At the end
of the day. They knew who he

was, he had a very good
reputation in the community or

does have a very good reputation
in the community. He has a track

record. That's unbelievable. He
has, you know, he has many,

many, many, many millions under
management. So he knows what

he's doing. That's why people
were investing with him not

because his pitch deck from the
beginning was very short. By the

end they grew to this
monstrosity because they thought

it needed to answer every
question and every pitch deck

and it's just not the case. At
the end of the day, the investor

invested in the person and in
the idea that you're selling

them. I have company I represent
come So we raised we raised, we

put together, PMS and all those
things for businesses as well.

And the businesses that do
terrific, they do terrific

because of one or two things,
they do terrific either because

the management team is
phenomenal. And they have a

great reputation. Right? So
these are people who it's like,

Oh, I know who that person is.
So they can raise money with

that, then they're hanging their
hat on that. And so they the

product itself may not be very
interesting. Some of the

products that the that that they
that they that they're raising

money for, are kinda dull, not
the kind of things that you'd be

like, Wow, that's great. But the
people who are running it, there

are people I've heard of,
they're people who are

interesting. They're people you
see on the media, right? Those

are the people, they don't have
trouble raising money. The other

businesses that do very well
raising money as they come up

with a really cool idea. So we
have cool, we have companies

that are very, very small, that
don't have a huge track record.

But the idea is really cool,
right? It's something that, you

know, if it was on Shark Tank,
every one of the sharks would be

fighting over, because it's such
a great idea. So those people

don't have any problem raising
money either. But this that

doesn't mean it's not the same
exact case for for for real

estate as well. Because real
estate, I mean, if you're buying

and building in the middle of
town that doesn't, you know, and

it's got this boring return. And
there's nothing interesting at

all about it. Well, you better
make something interesting,

because you're not going to have
a very easy time finding

investors. If you make something
and really explain why this is a

good deal beyond all of this,
then maybe you're going to have

something that's good. And so
that's the piece that's kind of

missing is that these, most
invest, most of the syndicators

are relying on these sets of
numbers here. But what what they

stand in, they see the gurus who
are putting together packages.

And what's the problem with a
lot of the Guru's So aside from

Apple's way, so excuse me,
what's some of the more famous

syndicators, maybe putting out
numbers that are the same as

this, but if you want to get
their PPM and I have, and you

start seeing what they're doing,
they're not getting that the

investors aren't getting that
they're counting on their

persuasive ability in order to
get that there's buyback rights

that are very onerous to the
investor. If you look up some of

these people, and you look on
some of the forums of, you know,

other investors and you know,
read about what people are

talking about them, you know,
they're getting returns of maybe

2%, maybe 3%. What's even worse,
though, is they probably could

get returns, because I've read
the PPM, they could get returns

that were negative, because of
buyback, right? So some of them

have buyback rights that say,
well, we can buy it, we have we

reserve the right to buy back
your property had 70% of the

value put into it. And they're
getting it and they'll fill up

very, very quickly. Or they'll
put it into product types that

are that are, you know, office
Midtown office products that,

you know, wow. Right now you're
gonna do an office project.

Great. Good luck. So that's kind
of the that's my spiel on

underwriting. So I hope that
helped. Let me take a chance to

look at some of the questions
great. If I invest is preferred

loan Class B share his
investment on personal name, or

company better.

The investment its itself is
when when investors coming in

and they're making a making
investing into debt, they're

investing not only they're
making a debt, a bet that you

are going to deliver, be able to
deliver that kind of return.

Because at the end of the day,
they don't really have equity to

bank on. Right. So they have to
believe in you most first and

foremost, because they don't
really have anything at the end

of the day. So they need to make
sure that that you are going to

be able to deliver on it. Now
yes, the by the company itself

has as backing behind it too.
But really they're counting on

you or the management team in
order to do that

the legal structure for
investing in properties in

different states is exactly the
same. So our legal structure is

always you know, we're we're
dealing with the federal system.

So our our structure is always
going to be under Reg D 506 B or

506 C. It's going to be you
know, you've got up You've got

your sponsor, entity here. And
you've got your investment

entity here, which actually I'll
draw as a building, we'll say

it's just a one property thing.
And your investors all invest

here and the sponsor manages
that, in exchange for management

fees. That's the That's the very
basic structure about how these

are put together. All right,
good. There's a question about

whether or not this whole
structure, you know, how do you

apply it in tour in terms of,
you know, putting together a

syndication. So when you're
putting together when you you're

deciding on whether or not to
move forward on a property

that's ultimately at the end of
the day, you want to be able to

give a number, right, because
your investors are expecting

this, they still need to know,
you know, what sort of returns

they're getting, but then at to
use these other these other

measures here. It's ultimately
how do I move those letters in

this is the this is how I start
every single time. So if, if you

were, you know, next to me, when
I was doing an analysis for the

next project I'm working on, you
would see, basically, I've got,

you know, I've got a series of
options available to me, and in

my spreadsheet, and then I'm
building out first I build out a

cash flow statement of just
complete cash flow, like I

bought this cash. Ultimately, I
want to get to noi, and I want

to look at what the basic facts
and assumptions are, you know,

where are those in my in my
middle of the road, I always

steer it to the middle of the
road. So that's where I start.

And then if I just assume put
together a simple structure,

what kind of returns am I
talking about? So if I come up

with, okay, at the end of the
day, with just all cash, I'm

getting a preferred return, I'm
getting a return of, you know,

maybe 15% IRR with a percent
pref and a 7030 split. To my

investors with no debt, okay,
well, then I know automatically,

and depending on the property
type, based on debt cost now, so

this used to be very easy, when
I when debt costs were, were

much lower. So before it was you
automatically would just put on

debt, and then when your returns
would go up, that doesn't happen

nowadays. So if my if I'm doing
15%, though, I would guess if I

could get debt below, below 10.
Or at you know, somewhere in

that ballpark, I'm going to be
able to bake more money for my

investors. And so I'd start to,
you know, put that on, the more

money I make to my investors,
the more money I can I can make

for myself. So I'm always trying
to balance that, right, I want

to make, I want to be able to
over deliver a little bit to the

investors and make the most
amount of money I can as as a

syndicator.

This is another question. The
sponsor has an ownership

interest in both. And both
entities Correct? Yes. Yeah,

absolutely. However, many times
it doesn't have to be that way.

So a lot of times, so this is
you here as the as the person.

So this entity here, this
sponsorship entity that exists,

its whole purpose is in order to
protect you from investors,

ultimately, or from the deal
going south and getting sued. So

it's an asset protection
vehicle. It's also easier in

order to manage the investment.
But the main purpose really is,

is that protection. Now most of
the time, if you wanted to

invest as well, I would put you
all the way here as an LP

personally investing into that
investment entity. And that

would be the way we do it.
Great, looks like right on time.

Are there any other questions? I
got time for one more probably.

I know it's a lot to digest. And
I talk fast. So I will be making

this recording live available.
But what I mostly wanted to do

was be able to share with you
sort of how I think about

underwriting because we're
entering into a whole new phase

of economics, you know, in this
country, right, we've got higher

interest rates. So the old days
of very low interest rates are

gone. We've got majorly shifting
diamond Amex not only in in

economics, I mean, we have, you
know, some areas of the country

are growing rapidly. Other areas
are not growing at all other

places are leaving, you know,
traditional good places, but

there are people leaving. So
there's major shifts that are

happening not only in that
sector, but also in terms of

what the general interest is,
right. So no longer is it going

to be. office used to be a
terrific office is a great

example. Because I've I've done
few Office projects. Office was

wonderful. It was great, it was
stable, it was easy. It's a

great product type. But now
office, I wouldn't touch at all

unless I had a great alternative
exit, if I had an opportunity to

buy an office building at a huge
discount, and I knew I could

turn that into a profitable
conversion and multifamily,

something like that. I do it.
But the estimate right now that

we're seeing, you know, from
from the industry, people who

make those sort of estimates is
probably at most 20% of those

could be converted into
multifamily. So that's a an I

don't know that that world
enough to be able to tell, which

is going to be 20%, which is
going to be 80%. But like I

said, we have, we have a lot of
changing demographics. But right

now, this is the time to start
syndicating. There are tons of

opportunities that are opening
up. And there are tons of

opportunities when you're
competing, not on numbers, when

you're competing at the level of
when you're competing just for

press splits and IRR is it's a
scramble, you're a commodity and

you know some of there going to
be winners and losers. But when

you're competing based on you
and you're making it your brand,

it's a whole different ballgame.
I mean, that's why some of the

Guru's are able to raise so much
money so quickly. But it's not

just the gurus. You know, one of
my one of my earliest clients,

he owns many, many billions
under management, it takes him

less than 24 hours in the last
project, he raised $200 million

in like three hours. So he hit
go on suddenly, email and ad do

under a million dollars, like
three hours, it was insane. And

that's the kind of thing that
people can compete for, while

other people are struggling to
raise $2 million. Because

they're competing on, you know,
I've got an 8% preferred return

with an 8020 split and giving a
15% IRR. You know, that's that's

not how you'll ultimately be
successful at competing. Now, if

you've already got that network,
that's great, because that's

automatically giving you the leg
up, and people investing in you.

So thanks for taking the time to
meet with me today. Again, I'm

Tilden, Moschetti, Moschetti
syndication Law Group, you know

that by now and if you're
looking to start your

syndication, you know, we're
we're a law firm that does more

than just help put together we
don't just put together a

private placement memorandum and
all those documents for you. But

we're also here to you know, I
want you to be successful, I

want to help you reach your
goals and be you know, think

long term and, and really grow
that company into something big

and if I can be a part of that,
and helping you grow that, you

know, nodded with equity, but
we're helping you grow that by,

you know, offering a little
something in terms of advice or

something like that. That would
be great. That'll make me sleep

even better at night. So thanks
again for taking the time and I

hope you enjoyed this webinar.