John Casmon

Analyzing Your Multifamily Spreadsheet with Omar Khan, Episode 52

That underwriting spreadsheet you just downloaded is not all it’s cracked up to be, according to Omar Khan. He has some controversial opinions on how many gurus are educating students on underwriting and syndication for multifamily and doesn’t hold back during our chat. Omar is a CFA charterholder, who has advised on $3.7 billion of capital financing. On this episode, Omar shares some great tips to step up your underwriting and helps passive investors identify conservative underwriting.

Key Market Insights

Family always owned office buildings
Hard work begins after you have the deal
Many investors acquire properties and quickly hand it over to a 3rd party property manager
$90 spreadsheet can’t replace a $150,000 analyst
Be sure to look at monthly cash flow analysis, not just annual
Few gurus are sophisticated, many are salesman
What to look for in underwriting: Pace of the rent growth, operating expenses per unit, exit cap
Pace of rent growth – usually between 3-6%, ideally should be 2-3% for conservative projections, 4-6% is aggressive
Estimates $5,000-$6,500 of operating expenses per unit (varies by market)
Exit cap should be 100+ basis points higher for a conservative estimate
Opposed to straight profit splits, as sponsors should get paid when they exceed projected targets
Preferred return between 8-10%
Retail investors ask, “How much return can I make?”
Institutional investors ask, “what are risks involved with this deal?”
These institutional investors are seeking sharp, concise presentations with a sensitivity analysis
Your marketing matters and many syndicators have crappy marketing materials
Focus on Dallas, Houston, San Antonio, Atlanta
Likes markets that favor landlords, attractively priced, job growth, job diversification