Case Study 5

The Importance of Running an Efficient Business

Situation 

The Agency went into liquidation.  Opulence Consultancy was employed to undertake a rent roll due diligence on the rent roll of approximately 340 managements for the purpose of sale. 

 

  • The agency had managed approximately 800 managements prior to liquidation. 
  • The agency had lost approximately 150 managements through attacks from other real estate agencies in the area. The loss of goodwill to date was approximately $700,000.
  • The remaining rent roll was split into two portfolios for the purpose of sale. 
    • The first portion of the rent roll was due to settle.  One of the contract conditions was for the contract to settle, the agency had to have a minimum number of managements with Form 6’s signed by the landlords to transfer the ownership of the files to the Buyer. The agency was short 40 managements with 1 week to completion.  The consultant employed by the liquidator had gone MIA and was unable to achieve the result required. 
    • The second portion of the rent roll was just under contract and Opulence Consultancy was employed to undertake the rent roll due diligence for approximately 400 managements. 

 

Employment of Opulence Consultancy

Opulence Consultancy started to work on the rent roll due diligence for the Client and found that the files of the agency were a complete mess due to the following:

 

  • The agency had merged. Each original business kept their file separate on the computer system.
  • The agencies had each purchased rent rolls.  Those rent roll purchased prior to the merge remained in separate files on the computer system.
  • The physical files did not contain all the rent roll information; therefore, some was stored on the computer and some in physical form.
  • The agency had undertaken the task of updating the property management agreements from PAMD20a’s to Form 6’s, however, was unsuccessful therefore, the management agreements were incomplete. 
  • The agency also had some information for each file stored on their server and not in the software system. 

 

Opulence Consultancy liaised with their client and requested that the liquidator extend the rent roll due diligence and finance clause which occurred. The liquidator in turn employed a temp to combine the files into one computer file so that Opulence Consultancy would be able to review the files quickly and efficiently.  

 

While the rent roll due diligence was on hold for the Client, Opulence Consultancy was employed by the liquidator to complete first sale. 

 

Outcome 

Within 4 days of employment by the Liquidator, Opulence Consultancy achieved the successful result of 70 signatures by landlords and the liquidator was able to settle the first contract.  

 

The temp was let go and the rent roll due diligence for the Client was able to be begin.  Within 10 working days, the files had been successfully reviewed and a full report provided to the Client for their review.  Unfortunately, the client was unable to attain finance. 

 

When a second buyer was found, Opulence Consultancy was employed by the Liquidator to assist with completing the contract of sale which again had a special condition of the number of managements which were required to be signed to a new Form 6 management agreement. The liquidator provided Opulence Consultancy with 1 week to produce 100 signed managements.  The employment of Opulence Consultancy began on a Monday and ended on the Thursday of the same week. At 2.20pm, 116 managements had been signed, transferring the management to the Buyer. 

 

Due to time delays with contracts, finance and the lack of preparation of the rent roll before being placed on the open market, the result in multiple declined as did the asset:

 

The original buyer of Portfolio C was under contract at a multiple of 2.80 and 333 residential managements in October 2018.  Because the time frame between buyer A and Buyer B being 6 months, the rent roll sold at a multiple of 2.10 and only 173 managements went across to the buyer.

 

This is what it looked like in dollar figures:

 

Original 

Portfolio C

Portfolio C 

SOLD

Further Loss

Number of Properties 

333

173

160

Annualised Management Fee Income Per Property Per Annum

$1,592.07

$1,592.07

 

Multiplier

2.80

2.10

 

Sale Price

$1,484,446

$578,399

$906,047

Management Fee Income Generated

$530,159

$275,428

 

Additional Income

17.08%

17.08%

 

Total Income Generated

$620,710

$322,471

$298,239

Date

October 2018

April 2019

6 months

 

The loss of managements and damage that occurs on a rent roll during liquidation over a period is not uncommon.  

 

The overall loss equated to approximately $1,606,000 in a short period of time. 

 

The first sale was not pleasant due to the lack of rent roll due diligence which occurred, employees were stressed and not performing due to the lack of leadership.  The second contract which settled was in far better preparation for sale however, due to unfortunate events the original buyer was unable to attain finance. 

 

Real Estate businesses should be prepared to be sold at any time.  No matter what unfortunate events occur, reducing time on market and minimising the risk of a contract being terminated is important.  Regularly undertaking rent roll due diligence is key to ensuring that your employees are operating efficiently, you are minising risk associated with running a rent roll and should unfortunate events occur or you decide its time to step out, the process to meet the open market is available to you.