Frequently Asked Questions
|What is a co-ownership purchase?A co-ownership purchase refers to real estate owned by a group of individual buyers, each with a fractional-deed co-ownership interest and on Fee Title with a Title policy.
What are the benefits of a co-ownership?
It’s an opportunity for an individual buyer to own a fractional interest in a stable, institutional-quality real estate asset. Co-owners share the tax and wealth preservation benefits of sole-owned real estate, the same or better cash flow, and long-term appreciation potential—without day-to-day management issues.
How large is the co-ownership industry?
In just 4 years (since the IRS issued guidelines that qualified fractional-deed real estate as ‘like-kind’ replacement 1031 Exchange properties), the industry has grown to $15 Billion annually.
What is a fractional-deed sponsor?
A company, like MNM, that acquires commercial real estate as a principal and offers it for co-ownership to 1031 Exchange buyers.
What are MNM’s credentials as a sponsor?
We have been a real estate principal and since 2006. We are one of the largest fractional-deed sponsors in the Bay Area, with an institutional-quality commercial property portfolio valued at over $60 Million.
How does MNM sponsors ensure that it will get enough co-owners to close on a property and meet my 1031 Exchange deadlines?
We have a large line of credit in place to ensure that all deals will close within the contracted time with the seller.
Who qualifies to participate in a fractional-deed property? MNM works with accredited, high-net-worth ($1,000,000+) individuals experienced in owning income property and wishing to complete a 1031 Exchange, invest IRA funds or liquid funds.
What is the minimum investment?
It varies, but typically ranges from $100,000 to $500,000.
Does MNM invest its own funds in the acquisition?
We generally invest about 10%–20% of the total equity required for each acquisition, and we then become one of the co-owners which aligns our co-owners interest with ours.
How many co-owners are involved in each property?
As few as 2 and as many as 34, but typically around 20.
Does the Sponsor ever control my 1031 Exchange funds?
No. Funds move from the co-owner’s 1031 Accommodator directly to the purchase escrow account. MNM never touches a co-owner’s 1031 Exchange funds.
Do I sign a loan?
You sign a loan for your pro rata share. With the exception of standard carve-outs, the loans are typically non-recourse.
How are decisions made?
By a vote of the co-owners, facilitated by the MNM through our co-ownership agreements.
What is MNM’s role after the close?
After the close of escrow on a property, we become a co-owner with the same pro rata rights and responsibilities as any other co-owner.
Who manages the property?
MNM Property Management Inc. manages the property under its property management agreement signed by all co-owners.
Who is the leasing agent?
MNM Property Management Inc. handles the leasing in accordance with the budget parameters and approved by the co-owners.
How are co-owners paid?
Each co-owner receives a pro-rata share of the quarterly income, tax benefits, and appreciation. Co-owners are paid directly by the property management company quarterly, subject to property performance.
What if there is a cash call?
This could occur, though sufficient reserves are set aside for each property to avoid such an occurrence. MNM has never had a cash call in 7 years of operations.
What is the exit scenario?
Co-owners are on Fee Title, allowing them to sell their interests to other buyers. Generally, our hold time is 5 to 7 years. If a co-owner wants to exit before the typical hold time, the co-owner who decides to sell must first notify MNM, who will have first right of offer, then offer it to the other co-owners. Other co-owners have first right of offer, after which co-owners are free to sell to another party, subject to the lender’s approval.
What if one of the co-owners goes bankrupt, dies, or divorces?
The property should not be affected. Each co-owner holds title within a newly formed, single-member, bankruptcy-remote LLC called a Special Purpose Entity LLC (SPE LLC). This protects the lender and each of the co-owners.
Can I exchange my co-ownership interest after the exit into a new property?
Yes, providing all 1031 Exchange regulations are followed.
What types of properties does MNM acquire?
We constantly reevaluate our acquisitions strategy and existing portfolio to make sure that we maintain the highest quality real estate and income streams for ourselves and our co-owners. Currently, we are looking to acquire multi-family properties worth between $10 to $20 Million in superb locations in San Mateo County.
What kind of Multi-Family properties does MNM buy?
We purchase multi-family properties primarily in the San Mateo County. We locate C to C+ multi-family properties in “A” locations in need of remodeling, re-tenanting and repositioning. As such we are also able to increase cash on cash along with valuation to our co-owners from an acquisition to exit.
Why does MNM buy Multi-Family on the San Mateo Peninsula of the Bay Area?
MNM believes the micro economics of the Bay Area can not be replicated anywhere in the U.S. Well over 40 to 60% of all venture capital funds are invested in the area between San Francisco and San Jose with the peninsula being land locked and supply constrained. The Bay Area has the best job growth in the U.S., which drives rents, which drives cash flow and valuation upside to our co-owners.
What types of debt does MNM put on their properties?
We negotiate with many lenders to ensure the most competitive rates and programs. Typically, we will place 10-year, fixed-rate debt on properties that are non-recourse to the co-owners (subject to standard carve-outs). This type of debt is priced off of the 10-year Treasury and is typically the lowest-cost debt in the marketplace. Often, the debt will have an interest-only component for up to the full debt term.
How does MNM protect buyers from increases in interest rates?
All properties we sponsor have long-term, fixed-rate financing with leverage between 40%–50% of the acquisition price. Since the low loan to value debt is fixed for up to 10 years and assumable to buyers, short-term fluctuations in interest rates should not negatively impact a property. We also require that all proposed acquisitions increase in net operating income throughout the debt term to offset potential longer term increases in interest rates and mitigate refinance risk.
What kind of due diligence is done on new acquisitions?
Our acquisitions team reviews all the due diligence materials, including historical occupancy and concession analysis, the creation of lease abstracts (if applicable), historical income and expense review, and the creation of the budget going forward. In addition, our lenders also review our due diligence materials to ensure that our projections are in line with our contracts and leases. A property condition assessment, survey, environmental report, and appraisal are completed for all properties and distributed to the prospective co-owners.
How does MNM source new acquisitions?
We constantly network throughout the Bay Area with commercial real estate brokers, pension funds, REITs, and private sellers to source new acquisitions. Often, we will be approached by brokers or sellers that we have previously done business with due to the professional and efficient nature of our acquisitions and closing departments.
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