{"id":15827,"date":"2016-08-04T05:00:19","date_gmt":"2016-08-04T12:00:19","guid":{"rendered":"http:\/\/www.yardi.com\/blog\/?p=15827"},"modified":"2020-12-24T04:11:27","modified_gmt":"2020-12-24T12:11:27","slug":"acquisition-due-diligence","status":"publish","type":"post","link":"https:\/\/www.yardi.com\/blog\/acquisition-due-diligence\/","title":{"rendered":"Smarter Acquisitions"},"content":{"rendered":"

Shrewd apartment owners understand that the greater financial value in an apartment transaction can be had during the acquisition\u2014not the exit.<\/p>\n

Industry veteran Ian Mattingly, President of LumaCorp in Dallas, speaks from experience. He \"MAXIMIZELOGO\"is part of a management team that carries more than 90 years of investor experience when it comes to applying due diligence. LumaCorp owns 24 communities that include over 6,000 total units. It has made 45 acquisitions in the past 32 years.<\/p>\n

Mattingly is one of three panelists who will speak about how to avoid \u201cnasty surprises\u201d during the process at a session at MAXIMIZE: 2016 Multifamily Asset Management Conference <\/strong>at Loews Coronado in the San Diego area Oct. 17-19.<\/p>\n

\u201cWhen we begin our talks with new investors, we like to tell them that we have a lot of experience in making mistakes,\u201d Mattingly says. \u201cWe tell them not to expect everything that happens when buying and selling apartments to work out perfectly. We have made our fair amount of mistakes. But what we also tell them is that we won\u2019t make the same mistake twice.\u201d<\/p>\n

Mattingly, whose firm focuses on Class B and C properties in Texas, will share knowledge about the process that is applicable to any apartment market. Among his focus will be re-inspections, city and county governments, building codes, fire codes, lease addenda, repairs and resident audits.<\/p>\n

\u201cWe specialize in markets where the bulk of the apartment product was built in the 1980s.\u201d Mattingly says. \u201cSo we\u2019ve been buying \u201880s-vintage properties for over 20 years. Of course, those properties are a lot older now than they were 20 years ago.\u201d<\/p>\n

Inspections. <\/strong>Mattingly says it\u2019s easy to overlook issue with city codes and inspections during due diligence.<\/p>\n

\u201cYou\u2019ll find that as some of these buildings get older, some [inspectors] want to crack down on them even more,\u201d he says. \u201cSome choose to be more nit-picky than others, or they choose to be nit-picky about different things.\u201d<\/p>\n

Mattingly recalls asking the seller of one community his company purchased if his property had passed inspection.<\/p>\n

\u201cThey told us they had, but when the city showed up for the re-inspection, we found they had demanded $30,000 to $40,000 in repairs that we didn\u2019t know about,\u201d Mattingly says. \u201cUltimately, the city worked with us on getting these done, but the bottom line was that we had to do it. We hadn\u2019t budgeted for it. We learned from this that you must always obtain a copy of the current code and fire inspection report from both the seller and the City<\/p>\n

Fire Codes & Building Codes. <\/strong>Mattingly says apartment owners can expect that certain cities will enforce the international fire codes. \u201cBut then they end up adding to that list of codes,\u201d he says. \u201cUsually they will dial back on these codes for existing structures, but you just don\u2019t know.\u201d<\/p>\n

\u201cOne time the fire marshal made a big deal about the size and shape of landscaping and shrubs near apartment windows. We went back and forth about it, and ended up having to pay nearly $30,000 to have things either removed or replanted.\u201d<\/p>\n

He says owners must stay abreast of any changes in code.<\/p>\n

\u201cSome cities will make a change and not include a phase-in period or a grandfather clause,\u201d he says. \u201cThat can get expensive.<\/p>\n

In one case, \u201cthe City of Dallas was concerned about the height of speed bumps placed throughout apartment communities, because they had found some bumps to be too high and were damaging the bottom of their fire engines on response calls.\u201d he says.<\/p>\n

\u201cThe new code said that the bump\u2019s peak height could not exceed 3 inches. This was important to them to protect their fire equipment, but it was tens of thousands of dollars to us to shave the speed bumps, and there was no phase-in period allowed to budget and plan for the expense.\u201d<\/p>\n

Resident Screening. <\/strong>Mattingly says his company once purchased a community without doing sufficient verification of their residents\u2019 income and time on the job.<\/p>\n

\u201cWe were buying from a major operator, and knew their screening criteria was sound, but we were purchasing a community that had a lot of residents who worked in retail and whom it turned out didn\u2019t have good job tenure,\u201d he says.<\/p>\n

\u201cThis was around 2008 and the economic downturn\u2014a time when a lot of employees were being laid off, starting with the least senior. These people had trouble paying the rent or moved out. Our occupancy rate suffered and delinquency soared. Now we check the tenant profile much more carefully.\u201d<\/p>\n

Learn More<\/strong><\/p>\n

Avoiding Nasty Surprises\u2014Acquisition Due Diligence: Humorous and Sad Tales of Past Buys<\/p>\n

Monday, Oct. 17, 4 p.m. to 5:15 p.m. PT<\/em><\/p>\n

Visit http:\/\/mamconf.naahq.org\/<\/a><\/p>\n

Due diligence is more than a checklist, and done well by only a few. We\u2019ll ask experienced presenters to tell stories that illustrate the fine points of due diligence, and their mistakes and omissions of the past. This session will be interactive, with participants asked to share their own stories and help educate the group about what they have learned to look for when buying a deal or taking on a management assignment.<\/p>\n

Pauline Thude-Speckman<\/strong>, Owner, Productive Property Mgmt.\/Meridian Investments<\/p>\n

Scott Wilkerson<\/strong>, Chief Investment Officer, Ginkgo Residential<\/p>\n

Ian Mattingly<\/strong>, President, LumaCorp Inc.<\/p>\n

James Davis<\/strong>, CEO, InfoTycoon (Moderator)<\/p>\n

**<\/p>\n

\"PBergeron\"Paul Bergeron is Director, Publications, for National Apartment Association (NAA). He is a regular contributor to NAA\u2019s monthly magazine units. He can be reached at<\/em> pbergeron@naahq.org<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

Shrewd apartment owners understand that the greater financial value in an apartment transaction can be had during the acquisition\u2014not the exit. Industry veteran Ian Mattingly, President of LumaCorp in Dallas, speaks from experience. He is part of a management team that carries more than 90 years of investor experience when it comes to applying due […]<\/p>\n","protected":false},"author":470,"featured_media":15844,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_s2mail":"yes","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[5,3354],"tags":[1597,1596,1595,29,44,165],"class_list":["post-15827","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-people","category-team-yardi","tag-guest-post","tag-lumacorp","tag-maximize","tag-multifamily","tag-naa","tag-yardi-client"],"acf":[],"yoast_head":"\nYardi Blog<\/title>\n<meta name=\"description\" content=\"Shrewd apartment owners understand that the greater financial value in an apartment transaction can be had during the acquisition\u2014not the exit. 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