Owner claims no T12 due to changing management company. Should I be suspicious?
I've been looking for an 8-10 unit property for six months. Buy side broker I've been working with has brought me something with financials that look good and works with my strategy. However, I've been told the owner won't be able to provide a T12 because she changed management companies within the past year. I was sent a non-machine readable PDF that's 6 months of itemized expenses up to Sep 2018. There are huge amounts of owner contributions that are counterbalanced by owner draws. From what I can see she had positive cashflow and there were no major problems with the building.

I'm inclined to move quickly so this one doesn't get away like the others, but I'm a little worried. Is lack of T12 and weird accounting something I should be concerned about? I'm going to walk it tomorrow. Is there anything specific I should ask about this?
[{"id": "f43iu8f", "text": "Shouldn\u2019t the previous management company have those financials? The owner should be able to just ask them.", "replies": [{"id": "f43k3mm", "text": "Just to play devil's advocate, owner could say no, and that's why they were fired/changed. \n\nI would keep pushing though.", "replies": [{"id": "f448je4", "text": "I've been told the previous management company was inept. The new one has had a difficult time getting anything needed from them to consolidate into a T12. That doesn't explain why there's nothing from the new company though.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "f43ltrd", "text": "Underwrite even more conservatively if that's the case, red flag to me.", "replies": [], "depth": 1}, {"id": "f43uf4f", "text": "It\u2019s not abnormal especially for a smaller asset with a mom and pop seller. You should confirm there weren\u2019t any big cash flow disruptions (hazard loss, multiple evictions, large expense items, etc.) but I wouldn\u2019t be overly concerned. \n\nFocus on what the cash flow will look like once you own it. Where will the taxes go? What do the leases look like? Are there major capital items on the immediate horizon?", "replies": [{"id": "f4485t1", "text": "Focus on what your personal pro forma looks like of course.  But be mindful that if you intend to finance this purchase you will need some historical operating numbers.", "replies": [], "depth": 2}, {"id": "f44agqb", "text": "I can verify there's been capex. I'm told there's been more vacancy than typical because it was completely section 8 and the idea was to transition to market tenants. So I'm guessing it will appear that there have been cashflow disruptions.\n\nStory is the current owner likes cashflow and didn't want to stomach the expense. She's out of state and is selling to buy an asset closer to home. The story seems plausible but her asking now is only a few hundred thousand over what she bought it for three years ago. If she put in value add money she's not getting value add return.", "replies": [{"id": "f44wwuq", "text": "You need to make sure there isn\u2019t a LURA in place. Could get complicated. Do you know if there is HAP overhang? Expiring section 8 contracts could crush your cash flow if those rents are above market. Maybe that\u2019s why she isn\u2019t asking much of a premium...", "replies": [{"id": "f451oa0", "text": "Broker specifically said no land use restrictions. \n\nThe rent roll doesn't specifically say who's sect 8 and who isn't, but there are 4 leases that were started earlier than the others, are mtm and are the same rent. Only one of the newer leases is achieving that rent.", "replies": [{"id": "f4529lf", "text": "I\u2019d look at the average market rents and write down your GPR to a figure that uses market rents for all units so you know what your baseline is without the Section 8. Does it still work?", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "f43ujru", "text": "I\u2019ve definitely come across this (not multifamily, but for skilled nursing) where the owner doesn\u2019t have the full year\u2019s financials due to change in ownership or management. We usually push them to reach out to old ownership for the missing months during the due diligence period since the old owner should have them. \n\nIf for some reason they cannot get them, then we will annualized the financials and underwrite conservatively.", "replies": [{"id": "f43vo4k", "text": "Same on a smaller office acquisition I did. Bought from a crummy owner who kept poor records, they said they couldn't get their old financial statements due to a bad break with the old management company. I just made it a condition of my due diligence review period that they provide me with those documents and once we had a PSA signed, held out my hard money deposit until they figured it out and got the documents to me. In the meantime we underwrote conservatively - even after seeing the T24 - because we simply didn't trust that the numbers would match the way that we planned to operate the asset (bad owners don't just lose their documents, they also lose track of preventative maintenance and the level of service needed to keep retention).\n\nIn the end, taking expense numbers from a property manager we could trust and pairing that with a property condition report we contracted and our forecasted revenue gave us a better picture of what the pro forma should look like than a bad owner's historical statements.", "replies": [], "depth": 2}], "depth": 1}, {"id": "f447hsr", "text": "Noting says you can't you cant ask for bank statements of the ownership entity. Did you get copies of the leases? Past bills (utilities, CAM stuff etc).", "replies": [{"id": "f4493pn", "text": "It came on my radar again a couple of days ago. I'm walking it tomorrow. So I haven't gotten to a stage where I'd ask for that just yet. Just a bank statement and current rent roll.\n\nDumb question, but would those requests be prior to an offer or during due diligence? This is my first time doing a project like this solo so I've got the broad strokes down but I'm missing a lot of details on the process.", "replies": [{"id": "f44c1qq", "text": "Ah got it. Usually, the BK Statements and other DD stuff comes with an offer.... that of course, you have contingencies in there to give you wiggle room to get out if you don't like anything.\n\nUsually, the broker will give you rent rolls, cash flow,  and proformas. Forget the proformas... those are just someone else's pipedream to make it look like every property has amazing upside. \n\nThe leases you look at with the eye of a detective trying to figure out if they are for real and market rents appropriate. Length left and staged increases will layout your future relationships with those tenants. Utility bills should match up with expenses. Receipts for Capex improvements will help you know if they we're ever actually done.", "replies": [{"id": "f44otwb", "text": "Awesome. Thanks for the info. \n\nThis may sound ridiculous, but do you know of a resource or book that will lay out what the steps are in the dance? Like what to ask for at what point and general things to look out for? I work at a commercial real estate brokerage but as a data guy. I see the macro picture on a day to day and learned the language but I don't underwrite or put deals together. Not to mention that $200m properties are fairly different from $2m. There's a lot I'm feeling for in the dark.", "replies": [{"id": "f472ewa", "text": "&gt;I work at a commercial real estate brokerage but as a data guy. \n\nNot to sound dickish, but you literally work at the best place to find that answer. \n\n&amp;#x200B;\n\nBarring that, here are some links;\n\n[https://www.thompsoncoburn.com/insights/publications/item/2016-11-13/due-diligence-checklist-for-commercial-real-estate-acquisitions](https://www.thompsoncoburn.com/insights/publications/item/2016-11-13/due-diligence-checklist-for-commercial-real-estate-acquisitions)\n\n[https://propertymetrics.com/real-estate-due-diligence-checklist/](https://propertymetrics.com/real-estate-due-diligence-checklist/)\n\n[http://harp-onthis.com/due-diligence-checklists-for-commercial-real-estate-transactions/](http://harp-onthis.com/due-diligence-checklists-for-commercial-real-estate-transactions/)\n\n[https://www.partneresi.com/resources/library/partner-commercial-real-estate-due-diligence-checklist](https://www.partneresi.com/resources/library/partner-commercial-real-estate-due-diligence-checklist)\n\n[https://gabhartinvestments.com/blog/2018/05/11/commercial-real-estate-due-diligence-checklist/](https://gabhartinvestments.com/blog/2018/05/11/commercial-real-estate-due-diligence-checklist/)", "replies": [{"id": "f483gtw", "text": "Appreciate it!\n\nNot dickish at all. I assumed I could get everything I needed from work colleagues. The issue I've had is what I kept getting suggested high level conceptual understanding materials. The number of people on the commercial team is in the low double digits so the bench isn't deep on who to ask. And now I'm working remote so it's difficult to bring it up casually. On top of it I'm a stereotypical redditor, much more comfortable coding behind a screen. Forcing individual face time with these guys who are putting together nine figure deals was a bit uncomfortable even when I was there.\n\nI will say, one thing I majorly fucked up on is my old boss kept nudging me to learn how to underwrite and use Argus from our analysts. I was happy coding and never did it.", "replies": [], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "f453auu", "text": "This is 100% normal for a mom and pop. \n\nAdjust your purchase price to take care of any concerns.", "replies": [], "depth": 1}]