Matt Faircloth: We just bid an apartment building deal. Do we
really want it, really excited about it- Herve Francois:
744 unit apartment complex. Woo that would have been the biggest one in the DeRosa portfolio-
Matt Faircloth: And we lost.
What's going on YouTube? This is Matt Faircloth here from the DeRosa Group. Make sure you
like this video and subscribe to this channel. This video is all about what
to do when you lose a deal. I'm going to bring in to talk to you guys about what happens in
matters like that you guys know him, you guys like him, the acquisitions manager for DeRosa
Group, here he is Herve Francois. Herve Francois:
No? Matt Faircloth:
That'll never get old. So how are you today? Herve Francois:
Thank you. I'm doing all right man. I've had better days, but I'm okay.
Matt Faircloth: Fighting the good fight. Herve
literally got the call five minutes ago. What we were bidding, and what call did you get?
Herve Francois: So we were bidding on a 744 unit apartment
complex. Woo that would have been the biggest one in the DeRosa portfolio. But anyways 744 units in
Greensboro North Carolina. We found out about this deal from a great broker relationship that we've
developed with over the past six or seven months. We ran the numbers on this deal. The numbers look
real, real attractive. This deal is about 30 minutes east from our big residences at Diamond
Ridge that you guys know about the 336 that we closed in last October. Justin and I got on a
plane. We went down last week. We went to tour the properties. Was four different properties on
this entire portfolio in Greensboro. We met with the broker. We walked around with the property
manager, the whole business plan put together. Herve Francois:
So the next step is obviously we got back home and we got on a call,
and we discussed it and what not, thinking about where we could submit our number that
was going to go into the letter of intent that we had to turn into the broker by yesterday.
Matt Faircloth: That's typically the first step, if you send
out the offering which is their version of the numbers, you hopefully go look at the property-
Herve Francois: That's right.
Matt Faircloth: ... then you send in a letter of intent, right?
Herve Francois: Right, right, right.
Matt Faircloth: Letter of intent goes in
and as they say, God willing and the creek don't rise, your letter of intent floats to the top,
and in a lot of times, apartment building projects you make what's called best and final.
Herve Francois: That's right. That's right.
Matt Faircloth: That's where you get to make to the next dance.
Herve Francois: To the next dance.
Matt Faircloth: The way the apartment building
crazy world that we're in today, there's a round so nice you get to bid it twice.
Herve Francois: Totally right.
Matt Faircloth: You bid the LOI, this is my best price,
and the best and final is, "Okay great, give us another price."
Herve Francois: Right exactly. Give us your
real, your better, better price. Matt Faircloth:
Give us your better, better, better price. Sometimes they'll do a buyer interview where you
get interviewed with the buyer and seller, have a phone call. Hopefully the seller selects their
buyer right? Got good feedback from a broker, I thought we looked good. You just got a call about
best and final and what was the news? Herve Francois:
On submitting our LOI, folks got to remember, one of the conversations that we had with the
broker last week when we were in North Carolina was, "Okay, what are the numbers looking like
for other investment groups that are looking at this property and have submitted their LOIs,
right?" We want to try to get an idea of what would it take-
Matt Faircloth: That price guidance.
Herve Francois: ... that right, that price guidance right?
Matt Faircloth: What's the great thing they call it?
Herve Francois: They call it whisper.
Matt Faircloth: They call it whisper. For those of you
guys that are not in the apartment building game but that want to be, most apartment building deals
are unpriced these days. Herve Francois:
That's right. Matt Faircloth:
Its funny. They won't put a price on the property, but you ask the broker what are they, what's the
price guidance? You're going to give me, and it's like, "I'll give you the whisper, the whisper."
They gave us a whisper of, and again, we're not showing off or talking trash about how we're
bidding bigger deals. We've been in business for 15 years. This is a big, big project, so whisper
on this deal was how much? Herve Francois:
The whisper on this deal was $58 million. Matt Faircloth:
We came in we were right there man. Herve Francois:
We were right there. Matt Faircloth:
We were right there within a couple percent. Herve Francois:
Within a couple of million. Matt Faircloth:
That size, that's not that much. Herve Francois:
That's not that much. It's not that much, but you know what? It was enough unfortunately to
receive the phone call that I got five minutes ago like he was saying, final. He called me
to tell us disappointingly to us that we did not make best and final. With that,
they gave us a little bit more information as to why. That information was specifically
the 15 groups that had submitted LOI letters- Matt Faircloth:
15 people gave an offer on this property. Herve Francois:
... 15 people to the broker including one of us who were the 15. They narrowed it down to five.
Those five that did make best and final, they submitted a bid at $58 million or higher. Two of
those five submitted $60 million or higher. Matt Faircloth:
Or higher. Here's some lessons on what to do when you lose an apartment building deal. You
saw our numbers. Herve Francois:
Yes. Matt Faircloth:
Did we do our best? If I feel like we overpaid on a deal, then we'll all not going to sleep well
because we're going to be chasing. We're going to be chasing the market and chasing numbers. You
saw the numbers a lot closer than I do because you work very close with our underwriter.
Herve Francois: I believe yes we did our best, doesn't mean
I'm not disappointed, but we did our best. Matt Faircloth:
It's okay to be sad. It's okay to be sad. Herve Francois:
Right. You know how sometimes right you take that college exam and you did your best,
but you still didn't get a good grade? That's what this was. We did our best, but we did not make it
the best and final. Folks listen its no secret that real estate is hot, commercial real estate
specifically multi family things are strong, apartment buildings and so on and so forth.
Matt Faircloth: For good reason.
Herve Francois: For a lot of good reason.
Matt Faircloth: Depreciation is going to land in multi
family than it lands in anywhere else. Herve Francois:
Absolutely. It's a good market. Matt Faircloth:
There's a lot of good reason. Herve Francois:
Cashflows, [inaudible 00:05:14]. Matt Faircloth:
The wound is not even, it's not even fresh. It's bare, right here on his arm. He just got
slashed. Are there any other lesson on just bid an apartment building deal, didn't really reel it in.
The fish took the bait and swam off with it, right? What's lesson number two?
Herve Francois: I would have a lesson number two for
you if we did not do our best. Matt Faircloth:
So what do we do now? We did our best, I believe that too. What's the now what?
Herve Francois: We go back here. We go back to the drawing board
and we do it again, whether it comes from a broker, whether its from an off market deal,
we're going to do the same process. We're not going to not go visit a property. We're not going
to not underwrite the deal. We're not going to not speak with the broker to not get the whisper
price and so on and so forth. We're going to get all that information, and we're going to submit
our best. We can have a discussion later on as like, "Ah do we inch up our numbers a little bit
more to make it a best and final?" You can always have that discussion. That's not necessarily not
doing your best, but- Matt Faircloth:
Right, tweaking your numbers versus overpaying. Herve Francois:
That's right. Matt Faircloth:
Don't start taking bigger risk just because you lost a deal to get more deals. Let me just
take more risk, right? This was a deal that was broker marketed, lots of emails. Their job is
to get the best price they can for that seller. So it's a seller's market, just accept that.
Herve Francois: That's right. That's right.
Matt Faircloth: Consider off the market stuff
for people that are either in distress or need to sell, or have to sell, or whatever it may be.
That's another angle, and maybe just accept the fact that it's a seller's market. You always tell
me you got to kiss a lot of toads. Herve Francois:
You got to kiss a lot of toads right to find that prince, but you're 100% right,
right? You have to stay disciplined. Remember why you got into this business. Remember who you are.
Stay in your lane. Don't go saying, "Oh we lost this one. We're going to now start doing
industrial and offices and everything else like that." We're going to continue in multi family.
We're going to stay disciplined. The good thing is that we have a model that's worked because we have
closed on deals before right and so right. Matt Faircloth:
Yeah we actually have done this before. Our conservative underwriting does get us to closings.
The deals that we close do very well because we don't overbid. Because we don't overbid, you're
going to get beat. Just because you got overbid on a property, that could be the best blessing
you got, like, "Hey I put my best foot forward for the profitability that I was willing to pay,"
and you didn't get the deal. So that means that somebody unfortunately may end up being a little
more compressed, a little more something. Maybe look at it as a good thing because that means
your best foot forward wasn't going to get you in the door. That means it wasn't meant to be.
Make sure you ask questions down below, and if you guys got any tips or things you'd like to share,
I appreciate you always leaving them. Matt Faircloth:
Though like I said in the beginning, smash the subscribe button and make sure you like this video
if you like what we do here on this YouTube channel. Thanks for watching guys,
and have a great profitable week. Its like two chimpanzees and they're talking to each other
like [inaudible 00:07:46]. Herve Francois:
58 million. I said "Woo." Matt Faircloth:
You're supposed to put the pinkie. Herve Francois:
I know I was supposed to go, "Woo $50 million." Matt Faircloth:
$50 million. Oh man Herve got their teeth kicked out of the deal,
right? Maybe that's what you want. That's okay. I didn't even have to
ask you to join me on that one. You just knew.
Herve Francois: No. I just knew.
Matt Faircloth: I love it.