But Northland won't just go to lenders. It relies on a vast array of sources, including brokers, title companies, local contacts, and its own managers to find deals. “We're going to be very aggressive when there's an appropriate opportunity,” Rosenthal says. “There may be all kind of opportunities, not just buying notes. For instance, some of the smaller REITs have to sell property. Maybe there's an opportunity to take a small REIT private.”
As it continues to add units and grow, there are sure to be questions. Is Northland buying too soon? Is it paying too much? Rosenthal admits that no one really wants to venture into the field first to buy right now. Part of that is fear. “The buyers and sellers are not meeting in the marketplace,” Rosenthal says. “Sellers are in denial. They just hold on. Buyers don't want to overpay.” Gnazzo agrees, adding: “No one wants to catch the falling knife.”
McCabe is one of those who think some buyers will jump in too soon. “There will be false bottoms in this downturn,” McCabe says. “There will also be people that jumped in early in the game—the knife catchers. It may be the second or third ones in the game that realize the profitable workout opportunities.”
Northland insists it hasn't jumped in too soon. Peter Standish, the company's senior vice president of acquisitions and development, warns that anyone judging Northland's buys in Florida needs to realize that the company isn't just buying in hopes of cap rate compression. “We want to make sure we understand and are realistic about what we're buying,” Standish says. “We believe we haven't overpaid and have positioned [our assets] for long-term holds.”
If Northland sticks to its script and continues to get deals at a discount, Rosenthal thinks there's potential for a great reward. “Fortunes will be made during this time,” he says.
Underwriting Challenge
At Northland, property managers and acquisitions frequently get together.
WHEN NORTHLAND Investment Corp. in Newton, Mass, looks at purchases, it doesn't just call up the acquisitions people. Its management team plays a big role as well, doing lease audits and market surveys.
“We literally do up to a one-year budget from the property management folks, and we match it [with the budget from acquisitions] and see how far apart they are,” says William M. Thompson, vice president of asset management for Northland. “Typically, property management is more conservative, and acquisition folks are more optimistic. It's a good balance for what the pro formas are in the broker packages.”
It's not hard to understand why management is hesitant. “Sometimes, management will come back and say they can get $100; sometimes they're hesitant,” Thompson says. “They have to execute.”
At this point, Thompson pulls each team in to see which line items are causing the difference in opinion. “We'll discuss who's right and who's wrong, if it's a happy medium, and if it makes sense to still move forward,” he says.
Often the management team can help make a deal work, though. They've been able to execute a money-saving initiative to boost NOI at existing properties and can plug that into a potential buy. “They will add what they think they can do to better those operating expenses,” Thompson says.
Three To Watch
Northland names its favorite markets.
NORTHLAND INVESTMENT CORP. is watching three types of markets very carefully. They are widely different, but the company sees success in each one. Here's why.