Peter Lohmann's Mailing List - Issue #70

My Thoughts on the PURE Situation

In case you missed it, PURE is involved in some litigation with a property management company owner who sold to them (33rd Company in Minnesota). 33rd is claiming PURE didn’t make a payment as agreed (I have no knowledge of the merits of the claim, and PURE did not reply to my request for comment).

The filings are public of course; you can find them here.

The interesting part of this and the reason I’m discussing it here, is because the purchase agreement was entered into the record at some point. I devoured it and thought it could be interesting to share my findings. Let’s go.

Facts are in standard text, with my commentary in italics. We’ve done several acquisitions at RL Property Management and I do some consulting around this topic, but of course this is not legal advice!

• Total purchase price 3.4M. Initial payment 1.79M, then 3 successive annual payments of 453k each. So the seller carried a note - very typical and considered quite safe generally, but the details matter! What must be true for the seller to pay out the buyer in full? You need to know this cold. I wrote an article about PM company valuations here.

• Buyer took some equity in PURE as part of the deal, valued at 250k. “Rolling equity”, as this is called, is not without risk. It’s also not uncommon. You’re basically making a bet on the future prospects of your buyer. Do you feel lucky?

• Deal was for 330 rental and 3,026 HOA units. Per the 6-month clawback language, these were valued at $4,620 and $620 each respectively. Rental unit valuation here seems in line with recent transactions. We don’t manage HOA so I don’t have much to say about that. The clawback is quite typical but is always a difficult wrinkle for both sides.

• This is an asset purchase agreement (not a stock sale). Reduces liability for the buyer and may have large tax implications. BUT it requires either an assignment clause in the PMA or written permission from the clients.

• Buyer has 1 year to discover trust account discrepancies and notify seller. Will reduce purchase price amount if not rectified. Many a PM owner has been slayed by the trust accounting dragon. The buyers are smart to include this clause IMO. I may steal this.

• The contract makes a point to create & define an important term: Non-Onboarded Properties. This is a good idea, because non-onboarded properties do become important and potentially contentious during these transactions. Also stealing this idea.

• Contract assumes (and states as much) that the seller has assignment rights to all the property management agreements (PMAs). If you ever plan to sell, or even if you don't, I always recommend including an assignment clause in your PMA.

• Buyer demanded a 5-year noncompete for 150 mile radius. Pretty normal and similar to what I would require.

• Two-way non-disparagement clause. Good idea.

• The seller used a business broker. I have never used a business broker but if I was selling today I would strongly consider it. Here’s a list of brokers who specialize in property management.

• Governing law shall be state of Delaware. Super annoying for the seller and is playing out well for the buyer in this case.

See you at LeadSimple University + RentScale’s Allbound?

I’m headed to Austin on Sunday for 2 conferences… first is RentScale’s Allbound (Sales Mastery) on Monday, and then LeadSimple’s first-ever user conference the rest of the week!

Here’s a sneak peak of my LeadSimple presentation:

This week’s issue is sponsored by: Enterprise Bank.

In the Property Management industry, there is no bank more LOVED by their customers than Enterprise Bank & Trust.

The glowing reviews range from:

• Earnings credits to not only provide free banking but ALSO offset company invoices as well;

• To a consultative approach to property management banking due to the specialty and niche knowledge in the CORRECT way to bank trust accounts and protect client funds;

• OR the best in class customer service team that ONLY works for property management clients.

Allison DiSarro and the property management banking team at Enterprise have been the top choice for our industry for over a decade, and as a client of Enterprise Bank & Trust, you can expect these same benefits that thousands of property management companies have been receiving.

Contact Allison and the PM banking team today to learn how your bank can finally work for YOU!

How is Your Speed of Repair?

Property Meld users, I’d love to compare data here. Check your email for your latest monthly report (subject line is “[Meld Monthly]”) and let me know your average speed of repair in the poll below (I love this email report btw):

Industry News and Events

• Speaking of Property Meld, they just announced a new suite of AI features coming in a couple weeks. Check it out.

• ProfitCoach just published all 3 episodes of their great “Operationalizing Profit” series and made them available to rewatch right here.

• Here is a PM company for sale in Wisconsin (1300 units).

• Here is a PM company for sale in Colorado (small).

• PM Systems Conference - January! I’m speaking. This is a great alternative if you didn’t snag a ticket to the LeadSimple conference. Use code “Peterrocks” for $100 off.

Closing Thoughts

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I have one property management coaching slot open right now. Grab time here to chat with me & learn more.

That’s all for this week! Have a great weekend. -Peter

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