As Next Realty raises capital for Next Realty Fund XI, LP, the firm is also focused on evaluating and acquiring properties aligned with its investment objectives.
According to Eteri Zaslavsky, Principal and Managing Director, Next has developed a multi-step process that allows the firm to quickly triage the hundreds of acquisition opportunities that are presented. This allows the firm to efficiently identify the most logical properties that can be put through a series of rigorous analyses before submitting an offer and ultimately acquiring properties.
Next’s acquisition strategy adheres to a focused set of criteria. This thorough and meticulous process includes:
Investment Offering
For each offering, Next begins with an initial evaluation based on its acquisition criteria to ensure properties are located in target markets, are within the firm’s areas of sector expertise, and fall within an appropriate price range. There is also a subjective element, based on the acquisition team’s years of experience and instinct. Next narrows down the number of offerings that make it to the next round; only a handful will move to underwriting.
Underwriting
This in-depth financial analysis of individual property and market dynamics helps to identify those properties that are likely to provide the appropriate level of return for the risk involved. In underwriting, Next tests a wide variety of assumptions, based on the firm’s investment thesis/business plan for the property. Included in those assumptions are financing costs, marketing and leasing expenses, and capital expenditures, among other items. Typically, a select few assets make it past underwriting.
Negotiation / LOI / Contract
During this stage, after Next has completed underwriting and tested its investment thesis, an initial letter of intent would be submitted. Following further negotiations, and if terms are agreed upon, Next proceeds to a contract to spell out all terms and conditions of the acquisition. The contract negotiation process may take several weeks and several document versions to complete. There are specific contract clauses, including reps and warranties, that protect Next investors during the due diligence process. These are extremely important and are non-negotiable. Typically, Next reaches an agreement with the seller. However, occasionally, a deal may not move past contract negotiations.
Due Diligence
After a contract has been finalized and executed, but before Next closes on an acquisition, there is a period of validation. The financial facts of the property, the physical condition, and current market dynamics are verified to test the investment thesis. A change in any of these elements could have a material impact on the potential transaction. Additionally, during the due diligence process, the debt financing terms are finalized.
Closing
The closing stage is the final step that completes an acquisition. It’s the period when all documentation—loan agreements and title insurance—is completed, funds are transferred, and Next (or a Next affiliate) becomes the proud owner of the asset.
Working through these various steps sets the stage for the period of time, which could range from a few years to longer, where property specific business plans establish “What’s Next” for the asset: Value-Add or Next Value-Keep®.
